Debt Management Plan pros and cons

Applies to: England, Wales & Northern Ireland

The advantages

• One payment. You pay the provider once a month and it shares the money between your creditors in proportion to what each is owed.
• Flexible. The payment can go up or down when your circumstances change, and you can end the plan at any time without legal consequences.
• Private. A DMP is not a formal insolvency and does not appear on the Individual Insolvency Register.
• Your home and belongings are not involved. Nobody can require you to sell or remortgage.
• No job restrictions. There are none of the legal limits on being a company director that bankruptcy or a DRO bring.
• Can be free. StepChange, PayPlan and Christians Against Poverty run DMPs without fees.
• Contact usually reduces. Most creditors deal with the provider rather than you, though they do not have to.

The disadvantages

• Not legally binding. Creditors can refuse the offer, take reduced payments and still add interest, or pass the debt to a collector.
• No protection from court action. A creditor can still issue a claim and get a County Court Judgment.
• Nothing is written off. You repay everything, unless a creditor later agrees to accept less.
• It can take a long time. There is no fixed end date. How long a DMP lasts.
• Your credit file is affected. Reduced payments are recorded, and accounts often default. DMPs and your credit file.
• Some debts cannot go in. Mortgages, secured loans and car hire purchase stay outside, and ongoing rent, council tax and energy must still be paid in full.
• Fee-charging plans cost you. Every pound of fees is a pound that does not reach your creditors. Free vs fee-charging DMPs.

Where a DMP is often a poor fit

Advisers often look at other options when:

• the plan would run for many years because the debt is large compared with the monthly payment;
• creditors will not freeze interest, so the balance barely falls;
• you have no spare income at all after essential bills, so a plan would only be token payments;
• a creditor is already taking court or enforcement action that you need legal protection from.

In those cases, formal routes such as a Debt Relief Order, an IVA or bankruptcy may be compared — each has its own costs and risks. In Scotland, the statutory Debt Arrangement Scheme gives legal protection to people repaying in full.

Weighing it up

A DMP tends to be considered where debts are repayable in a reasonable time and keeping things informal matters — for example to avoid insolvency restrictions. The trade is flexibility in return for no protection. A free adviser will show you the numbers for each option side by side.

This page explains how the solution works. It is not a recommendation, and it cannot tell you whether it suits you — a free, regulated debt adviser can look at your full situation.

Common questions

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