Debt Management Plan

A Debt Management Plan, commonly known as a DMP, is where either you or a third party negotiate lower monthly payments to your creditors. It isn’t legally binding unlike other debt solutions, such as an Individual Voluntary Arrangement (“IVA”).

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How does a Debt Management Plan work?

Your payments are proposed based on what you can reasonably afford. This is worked out through a breakdown of your monthly income and expenditure. The payments are usually paid over a longer period. Payments can also be revised should your circumstances change.

Unlike an IVA, you will repay your debt in full. Your creditors may agree to freeze interest and fees on the debts included, but this is not guaranteed.

If you opt for a private debt management company, they will charge you a fee for negotiating and administering your DMP. However, there are some debt charities that offer the service for free.

If your creditors agree to the reduced payments offered, all you need to do is keep up with your payments.

Do you Qualify for a Debt Write Off?

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Am I eligible for a debt management plan?

There’s no maximum or minimum debt level needed to enter a DMP, but there are some things to consider before applying.

A DMP is good for those who are struggling to keep up with their debt repayments, but who can afford to consistently pay smaller amounts over a longer period of time. It’s also good for those whose circumstances are likely to improve over time and who have a steady and relatively stable income. Before applying for a DMP, you should be sure that you will still be able to pay your priority bills, such as your mortgage/rent and council tax.

What debts can be included in a DMP?

Not all debts can be included in a DMP as it is designed to help with your non-priority debts. Debts suitable for this solution include:

  • Personal loans
  • Credit card debt
  • Overdrafts
  • Bank/building society loans
  • Payday loans
  • Store cards/credit
  • Money borrowed from friends/family

Debts that are unsuitable for a DMP include:

  • Council tax
  • Income tax
  • Court fines
  • National Insurance
  • Hire purchase contracts
  • Child support or maintenance
  • TV Licence
  • Utility bills

Advantages of a debt management plan

  • As it is an informal solution, your DMP won’t be recorded on an insolvency register

  • A DMP shows you are willing to pay your debt in full, so your creditors will look at this more favourably

  • Creditors can freeze interest and charges on your debts

  • For the most part, DMPs are flexible – allowing changes to be made if your situation changes

  • They reduce your monthly payments to your debts

  • You can have less contact with your creditors if you opt to use a third party as they will deal with them on your behalf

Disadvantages of a debt management plan

  • It can take you a long time to pay back your debt

  • Freezing interest and charges is not guaranteed from your creditors

  • You are still liable for your full debt level

  • It isn’t guaranteed that your creditors will accept the offer of reduced payments

  • Creditors can still take legal action against you

  • Your creditors are not obligated to stop contacting you, unlike other debt solutions such as an IVA

  • Some private DMP providers will charge fees for the service, which can extend the length of the plan

  • Your credit score could be negatively impacted, making getting further credit more difficult and expensive

The Debt Management Plan Process

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Select you DMP provider

You can negotiate a DMP with your creditors directly yourself if you choose to without using a third party.  Don’t be afraid to go down this route; you’ll be surpised at just how receptive they can be. If you opt to use a DMP company, an advisor will represent your interests, and remove the stress of direct contact with creditors. A number of debt charities offer DMP services free of charge.

Work out your budget

Next, you must work out how much you can afford to pay in your monthly instalments, by carefully analysing your budget.
If you chose to use a DMP provider, this will involve providing pay slips, bills, and other documents, so that the amount you can afford to pay after essential costs can be calculated.

Submit a suggestion to creditors

Your budget will then be shown to your creditors, who will decide whether or not to accept your new monthly payments. If they accept, they may also agree to freeze ongoing interest and/or charges as a gesture of goodwill.

If your creditors do not accept the new payment plan, you may be eligible for an alternative solution, such as an Individual Voluntary Arrangement, or Debt Relief Order or Bankruptcy.

Make your new monthly payments

If your creditors agree to your new reduced payments, the final step is simply to keep up with them.

If you chose to use a DMP provider, you will make your monthly payment to them rather than directly to your creditors.

This means you have only one payment rather than several, which can make things much more manageable.

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Re10 (Finance) Ltd, York House Unit 4, Gemini Business Park, Sheepscar Way, Leeds, LS7 3JB
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"Become Debt Free" is a trading name of Re10 (Finance) Ltd (company number 4651137) with offices based in Leeds and London. We specialise in providing and administering Individual Voluntary Arrangement (“IVA”) solutions to individuals based in England, Wales and Northern Ireland. We do not administer Debt Management Plans, Debt Relief Orders, or any other debt solutions.  We only provide advice after completing or receiving an initial fact find where the individual(s) concerned meets the criteria for an IVA, therefore, all advice is given in reasonable contemplation of an insolvency appointment. Re10 is regulated by the Insolvency Practitioners Association.

To qualify for debt write off in an IVA with us, you must have a minimum of £7,000 of qualifying unsecured debt owed to two or more creditors. A debt write off amount of between 25% and 75% is realistic, however the debt write off amount for each customer differs depending upon their individual financial circumstances and is subject to the approval of their creditors.

Andrew Bowers FIPA FABRP is authorised by the Insolvency Practitioners
Association to act as a Licensed Insolvency Practitioner.

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