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Debt Management Plan for Self-Employed – What’s Possible?

debt management plan for self employed

If you’re self-employed, then there’s a chance you may be having troubles with cash flow as well as debt. 

Debt management plans are often considered to be one of the best solutions available to individuals suffering from debt in the country. 

In this post, I’ll be looking at whether getting a debt management plan is a good idea if you’re self-employed and what are some things you need to be aware of if you’re opting for one. 

What is a Debt Management Plan (DMP)? 

A debt management plan is an informal agreement between you and your creditors which states that you will repay your debts in instalments at a rate that is affordable to you. 

Unlike an IVA, you typically repay your debts in full when you’re in a DMP


DMPs are typically utilised to take care of personal debts that you may have. They’re not preferable if you have business debts accrued. 

This is because when it comes to business debts, it’s a lot more difficult to get creditors to accept the terms of the DMP such as the reduced payments as well as freezing interest and charges

If you’re self-employed and have accrued personal debts, then a DMP might be a worthwhile option for you. 

What Types of Debts can be Included in Debt Management Plans? 

Debt management plans are often preferable for individuals that have typical unsecured debts. These could include credit card debt, bank loans, overdrafts, catalogue debt, etc. 

Secured loans and priority debts cannot be included in debt management plans as debt management plans are informal agreements. 

So, this means that as a self-employed individual, any debts that you owe to HM Revenue & Customs (HMRC) such as VAT arrears cannot be included within your debt management plan. 

This is one of the reasons HMRC usually gives people a time of 12 – 18 months to repay the debt(s) owed to them; Most debt management plans have much longer durations.

National Insurance also cannot be included in a DMP

Other priority debt(s) such as mortgages also can’t be included within a DMP. Thus, you’re going to have to take this into account before opting for one. 

If you owe money in the form of priority debt(s), you’ll have to keep paying them off separate from your DMP

When you’re devising a payment plan for your DMP, the separate payments you’re making to HMRC (or other priority debt creditors) will be considered essential living costs. 

In conclusion, if you only have business debt or other priority debt(s) such as money owed to HMRC, council tax, mortgage debt, etc. then a DMP is not right for you. 

However, if you want to keep your business afloat while taking care of your personal debt at the same time, then a DMP might be worth considering. 

How do I Draft a Payment Offer for My DMP? 

Debtors who are under traditional employment sit down with their debt management plan provider and draft their payment offer by calculating their budget. It’s relatively easier to work out the budget as these debtors have fixed monthly incomes. 

However, if you’re self-employed and run your own business, then your monthly income most likely varies. This can throw a wrench in your efforts to calculate a clear budget for your debt management plan. 

The key here is to use averages. 

Start by calculating the average revenue your business has brought in over the last 6 – 12 months. Next, deduct your average monthly expenditure from it. This should give you an estimate of your spare income. 

Next, deduct any monthly payment you’re going to be making towards any creditors that aren’t included in your debt management plan such as HMRC. This should leave you with a rough estimate of what you can afford to pay towards your debt management plan every month. 

Drafting a payment offer for a debt management plan when you run a business can get complicated. I highly advise that you seek debt advice from a professional instead of doing this on your own. 

You can opt to contact a debt charity such as Stepchange or Business Debtline. They can assess your financial situation as well as your business in order to determine what your payment offer should look like. 

By getting debt advice from professionals, you will drastically increase the chances of your payment offer being accepted by your creditors.


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Will I be Able to Use Credit During a DMP? 

It’s important for you to understand that a DMP, just like any other debt solution, has a severely negative impact on your credit score

Since a DMP involves you making reduced payments towards your debt, your credit rating is naturally going to go down. 

As a result of this, you may start having difficulties securing new lines of credit

While this may not be as big of an issue if you were a traditional employee, it can definitely be a significant problem if you’re self-employed. 

For example, you may need a key supplier account or a certain credit card in order to effectively run your business; Something you may not have access to once you enter into a DMP

Lines of credit that you require to run your business are extremely important and this is something you should discuss with your DMP provider before entering into one. 

If your business starts failing to bring in revenue after you enter into a DMP, you could find yourself in much dire circumstances than you were before you opted for one. 

Hence, always ensure that any resources you need to effectively run your business won’t be difficult to obtain once you enter into a DMP

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Conclusion 

While a DMP is certainly a worthwhile option if you’re self-employed and have personal debt, there are additional factors you most certainly will need to take into account. 

I hope you found this information useful. Let me know in the comments if you have any further questions. 

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  • Affordable repayments with an end date in sight
  • Reduce pressure from people you owe money to
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