What is an Informal Debt Management Plan?
For free & impartial money advice you can visit MoneyHelper. We work with The Debt Advice Service who provide information about your options. This isn’t a full fact-find, some debt solutions may not be suitable in all circumstances, ongoing fees might apply & your credit rating may be affected.
For free & impartial money advice you can visit MoneyHelper. We work with The Debt Advice Service who provide information about your options. This isn’t a full fact-find, some debt solutions may not be suitable in all circumstances, ongoing fees might apply & your credit rating may be affected.
Struggling with debt can feel very hard. You may be thinking about an Informal Debt Management Plan (DMP) to help you.
But what is it, really? An Informal DMP is a way to pay back money you owe, without making things tough for you.
Every month, over 170,000 people visit our site seeking advice on debt matters, so you’re not alone.
In this article, we’ll explain:
- What an Informal DMP is
- How it can help you pay back what you owe
- How an Informal DMP works
- If it might make some of your debt go away
- How to get an Informal DMP yourself
We understand that dealing with debt can be scary; some of us have been in your shoes. That’s why we’re here to help you learn more about Informal DMPs.
What is an informal Debt Management Plan?
An informal debt management plan, also known as a Debt Management Plan (DMP), is a debt solution that is not legally binding. Because DMPs have no legal weight, they are classified as informal debt solutions, as opposed to a formal debt solution which is legally binding.
Any party can decide to withdraw from the informal DMP at any time. However, once a DMP has been agreed upon, it is uncommon for creditors to cancel the agreement when the debtor is keeping up with repayments.
But this isn’t all you need to know about informal debt management plans. Keep reading to uncover how they work and answers to related frequently asked questions.
How does an informal DMP work?
An informal DMP is an agreement between you (the debtor) and the companies you owe money to (the creditors). A debtor sets up a DMP with several creditors, which is usually done via a third party, such as a debt charity or a specialist DMP company.
The main concept of an informal Debt Management Plan is that a single monthly payment will be made to the DMP provider, and this payment will be proportionally divided among your creditors. A commercial DMP provider will charge a fee for their service. This fee will be taken from the monthly payments you make.
It is hoped that creditors will agree to reduce payments and/or freeze interest during the course of the DMP. The DMP provider will use evidence of your personal finances to prove what repayments are affordable without you getting into financial difficulty. If you are shown to be doing your best to repay, there is usually a better chance of creditors agreeing to reduce repayments or freeze the interest.
However, the repayment period may be extended to ensure the creditors still get back all of the money they are owed. Thus, It is only a way of streamlining and reducing repayments until all of your debts are cleared.
How a debt solution could help
Some debt solutions can:
- Stop nasty calls from creditors
- Freeze interest and charges
- Reduce your monthly payments
A few debt solutions can even result in writing off some of your debt.
Here’s an example:
Situation
| Monthly income | £2,504 |
| Monthly expenses | £2,345 |
| Total debt | £32,049 |
Monthly debt repayments
| Before | £587 |
| After | £158 |
£429 reduction in monthly payments
If you want to learn what debt solutions are available to you, click the button below to get started.
Can I do a Debt Management Plan myself?
In the past, debtors have decided to set up their own Debt Management Plans with their creditors to avoid DMP company fees. However, this can be a lot of work and you may prefer to use one of the free DMP providers instead, such as StepChange.
» TAKE ACTION NOW: Fill out the short debt form
Can a Debt Management Plan stop bailiffs?
An informal Debt Management Plan could potentially stop bailiffs from coming to your home. If one of your creditors was planning to get a CCJ and enforce your debt with bailiffs, a Debt Management Plan could change the creditor’s mind.
They do not have to agree to the informal debt solution. But proving you are doing your best to affordably repay the debt might stop them chasing the debt through the courts – and then enforcing it with bailiffs.
Thousands have already tackled their debt
Every day our partners, The Debt Advice Service, help people find out whether they can lower their repayments and finally tackle or write off some of their debt.
Natasha
I’d recommend this firm to anyone struggling with debt – my mind has been put to rest, all is getting sorted.
Reviews shown are for The Debt Advice Service.
Informal debt management plan example
To better understand how informal Debt Management Plans work, here is a simplified example:
John has three debts with three different loan companies, each of around £1,000. He has been struggling to make his expected loan repayments each month. After speaking with a debt adviser, he decides to apply for a DMP through a debt charity for free.
The charity agrees on a DMP with all three loan companies, proving that he is unable to meet his current repayments due to a decrease in household income. The loan companies have agreed to stop charging interest and reduce his monthly payments.
Instead of making monthly repayments to each loan provider, John now makes one more affordable payment to his DMP provider, which then pays each loan company their share of this payment. This continues until all of John’s debts have been fully repaid
The DMP has helped John to pay off his debts while avoiding financial difficulty, and it may have even prevented legal action from being taken against him.
