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What is a Debt Management Plan (DMP)?
A Debt Management Plan (DMP) is an informal debt solution for debtors who cannot afford to make full repayments on their existing non-priority debts. As an informal debt solution, the DMP isn’t legally binding, which means the debtor and the creditor can pull out of the agreement at any time.
A DMP is just one type of debt solution. You can learn about all the different debt solutions on our debt solution page, including some solutions that can write off some or all of your debt!
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Some formal debt solutions can write off eligible debts, but suitability depends on where you live, your debts, income and assets. Fees, restrictions and effects on your credit record may apply. Free, impartial debt advice is available from MoneyHelper. The enquiry form introduces you to our commercial partner; submitting it does not confirm that you qualify for any solution.
How does a DMP work?
A DMP works by asking multiple creditors to agree to smaller monthly repayments until the debt is repaid, often asking for interest to be frozen for the entirety of the DMP. If agreed by the creditors, the debtor will make a single monthly repayment into the DMP, which is then proportionally divided between creditors based on the amount owed to each of them.
A creditor is only likely to agree to a DMP if you can evidence that you’re doing your best to repay all of your debts and are treating all debts equally. You do this by supplying the creditor with a detailed monthly budget, highlighting essential expenses, debt repayments and disposable income.
You can set up a DMP yourself by communicating and negotiating with all your creditors. Or you might use a debt management company to do this for you, but these companies do charge fees for their service. A debt charity can be the better option and may even try to set up your DMPwith creditors for free.
What are the advantages of a Debt Management Plan?
The advantages of using a Debt Management Plan are:
- You reduce your monthly repayments on non-priority debts
- Your debt interest could be frozen
- Your debt repayments become more affordable based on personal circumstances
- Debt charities might set them up for you for free
- Your DMP repayments can be adjusted if your financial circumstances change
What are the disadvantages of a Debt Management Plan?
The drawbacks of using a Debt Management Plan are:
- You will still pay back your debts over a longer duration
- Debt Management Plans cannot include secured debts
- The creditors can change their mind and chase you for payment or even take legal action. However, this is unlikely if you keep up with repayments
- You might have to pay service fees for your DMP
Does a DMP show up on a credit report?
Creditors included in your DMP can ask credit reference agencies to add a record of the DMP to your credit file, showing that you’ve entered into a DMP with reduced monthly payments. Even if creditors don’t ask for this, any missed repayment prior to when the DMP was agreed upon will be recorded.
How long does a Debt Management Plan affect your credit rating?
A DMP is not a separate public insolvency entry, but reduced-payment arrangements, arrears or defaults on the included accounts can damage your credit record. A default normally remains for six years from its recorded date. Accounts without a default can remain for six years after closure. There is no single six-year countdown from the day a DMP starts.
Does a DMP affect my current mortgage?
Mortgage payments remain a priority and should be budgeted for separately from payments towards unsecured debts. A DMP does not itself alter the mortgage agreement, but missed mortgage payments can put the home at risk and DMP-related credit history can affect future borrowing or a change of lender.
Can I get a loan if I have a Debt Management Plan?
Nothing is stopping you from applying for a loan while on a Debt Management Plan. However, you will find it harder to get a loan if your credit score was reduced by missing payments, which led to getting the DMP. It’s not recommended to take out additional credit when on a DMP.
If you’re considering a loan to help with DMP repayments – stop!
If your financial situation has worsened, you don’t need to apply for a loan to keep up with DMP repayments. You can instead communicate with your creditors or debt management company to explain how your finances have been reduced. And then apply to have DMP repayments reduced or even get a DMP repayment holiday.
Can I get a mortgage whilst on a Debt Management Plan?
It isn’t impossible to get approved for a mortgage while using a DMP to clear your debts, but it will certainly be more difficult.
Some lenders do offer mortgages to people with an ongoing Debt Management Plan, but you’ll probably have to look beyond the usual high-street lenders and consider bad credit mortgages instead. .
If you are approved for a mortgage with a DMP, it’s likely your borrowing power will be restricted or you could be asked to pay a higher interest rate because of the DMP.
If you waited until your DMP has ended and your credit score has recovered, you may be able to access better mortgage deals.
DMP Mortgage Lenders – which ones accept?
Some mortgage lenders do offer mortgages for people with an active DMP, also known as DMP mortgage lenders. However, it will come down to your individual circumstances on whether they approve or reject your application.
In this situation, it may be better to speak with a professional mortgage broker who specialises in helping people with a bad credit rating. They will know the current market best and be able to provide personalised advice and recommendations – and they can even help with the complete bad credit mortgage application.
You might be able to get an idea of what could be on offer by visiting the websites of specialist mortgage lenders who look past your credit report, and by using a bad credit mortgage calculator.
How long does it take to get a mortgage after a Debt Management Plan?
It’s possible to get a mortgage while on a DMP with some mortgage lenders, and it’s therefore possible to get a mortgage soon after a DMP has ended with some specialist lenders too.
The longer you wait before applying, the greater chance you have of improving your score. Waiting as long as possible after the DMP while handling your finances effectively will help you access better mortgage deals.
Can you remortgage with a Debt Management Plan?
It’s possible to remortgage with a Debt Management Plan, but you could run into the same issues as someone trying to get a mortgage for the first time with an ongoing DMP.
Remortgaging is when you switch from one mortgage to another mortgage, usually for a lower interest rate or other financial benefits. And therefore it’s similar to a new mortgage application.
You might have a better chance of remortgaging with a DMP if you’re sticking with the same mortgage provider than if you are switching to a completely different lender.
How long after a DMP can I remortgage?
There is no guaranteed waiting period or promise of a better deal. Lenders consider the remaining debts, credit history, affordability and their current criteria. A product transfer with the current lender and a remortgage to another lender may involve different checks. Get regulated mortgage advice before making applications.
Can I pay my DMP off early to help get a mortgage?
A creditor may accept a full-and-final settlement, but there is no standard 70% amount. Explain where the lump sum comes from and get written confirmation that the agreed payment settles the entire remaining balance before paying. Ask how the account will be reported to credit-reference agencies.
Discuss the offer with your DMP provider or a free debt adviser. Settlement does not automatically remove previous adverse information or guarantee a mortgage.
Can a DMP improve your credit file?
A DMP may make repayments more manageable, but paying less than originally agreed can harm the credit record. Clearing balances and maintaining later payments may help over time; there is no guaranteed immediate score improvement. See Experian’s DMP guidance.
