Are you struggling to keep up with your debt payments on credit cards, store cards, or loans? If so, it’s important to take action now to gain greater control of your finances. A debt management plan (DMP) could be the right option, with many providers available to offer this popular debt solution. Read on to find out more about what a debt management plan is, how it works, and what the benefits are.

What is a Debt Management Plan?

A debt management plan (or DMP) is an informal agreement in which you agree to repay your creditors off at an agreed, but affordable, amount each month until your debts are paid off. Once instructed, whoever you chose to manage your debt management plan will talk to your creditors and arrange an affordable repayment on your behalf. You simply make one monthly payment to them and they will distribute the money as agreed.

A debt management plan is one of the most common forms of debt help, with thousands of people taking them out in the UK every year. A DMP is a type of repayment plan which is set up between you and your creditors to allow you to pay back your non-priority debts. This might include credit cards, store cards, overdraft, and personal loans. Keep in mind that secured loans and some other debts will need to be paid separately.

You can usually choose which accounts are included in your DMP, however, keep in mind that you’ll need to close all the credit cards which are part of it. You pay back the debt in one affordable monthly payment, which is then distributed between your creditors. DMPs are usually handled by a DMP provider who deals with your creditors on your behalf.

A debt management plan may be the correct debt solution for you if you can still afford to repay something after paying for essentials; such as food, transport and utilities. Since you are paying less than you should, your creditors might still chase you for payment, but we have a good success rate in stopping calls and letters from creditors.

Please Note: Debt Assist UK only provide debt advice; we do not directly provide any financial solutions ourselves. We will talk you through your available options and if appropriate, we can offer you a no-obligation referral to a regulated debt solution provider, from whom we may receive a referral fee. Some debt solutions involve fees to you – these fees may differ based on the circumstances of your individual situation, but will always be explained to you by your chosen solution provider in writing before you decide to take up their service(s).

What are the benefits of a debt management plan?

If you’re struggling with your bills, a debt management plan can be a practical solution to your money worries. You may be making payments every month but worry that the balance never seems to go down. This is a common problem with borrowers who need debt help, but a DMP can put you on the right path to financial freedom. Here are some of the biggest benefits of a debt management plan.

  • One monthly payment: Making one regular monthly payment gives you greater control over your finances. You’ll no longer need to juggle bills from several different creditors.
  • Frozen interest and charges. When you enter a DMP, your creditors may agree to freeze the interest and charges on your debt. They may also cease other action, such as taking you to court.
  • Lower monthly payments. Making smaller monthly payments will help you to pay off your debts more quickly. This can allow you to more easily afford other necessary expenses. With a DMP, you only need to repay what you can realistically afford.
  • You’ll be debt-free sooner. Since the interest rates on your debts may be lower in a DMP, more of your payment will go toward the main balance. This means you’ll be debt-free sooner.
  • Fewer calls from creditors. In many cases, you’ll no longer be contacted by your creditors. This can provide great peace of mind to many people.

Pros of a Debt Management Plan

  • Just one monthly payment.
  • Only repay what you can realistically afford.
  • Creditors usually stop chasing for payment.

Cons of Debt Management Plan

  • You credit rating will almost certainly be affected.
  • Can take a long time.
  • Creditors can continue to chase payment.
Loading

Debt Management Plan FAQs

In a debt management plan, you can include unsecured debts, so most everyday debts are likely to be included; credit card, payday loans, overdraft, catalogues and personal loans can all be included. However, secured loans and certain other debts, will need to be paid separately.

Unlike some other debt management solutions, a debt management plan isn’t legally binding. This means that if your plan isn’t working for you, you’re free to cancel. However, before you do so, it’s strongly recommended that you consult with your DMP adviser.
Can I cancel my debt management plan?

Unfortunately as this is an informal debt solution your creditors can still chase you for payment. However, whoever manages your debt management plan will try their best to ensure that this doesn’t happen.

In short, yes. However, if you are in a position for a debt managment plan to be a viable option, you are already struggling to meet repayments on multiple debts, and therefore your credit rating is already likely to be affected. however, a DMP is the first step in rebuilding your credit score.

Alternatives to a Debt Management Plan

Individual Voluntary Arrangement (IVA)

An individual voluntary arrangement (IVA) is a legal procedure for people in financial difficulties with unsecured debts. It is a legal agreement between you and your creditors to only pay what you can actually afford to pay off your debts.

Bankruptcy

If your debt has reached an unmanageable level, bankruptcy is one way of managing it, especially if you are in no position to pay off your debts in a reasonable time frame.

Protected Trust Deed (PTD)

Only for resident of Scotland, a protected trust deed (PTD) is similar to an IVA in that it is a legally-binding agreement between you and your creditors, whereby you make one, affordable monthly payment.