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What is an Informal Debt Management Plan?


For free and impartial money advice and guidance, visit MoneyHelper, to help you make the most of your money.

An informal Debt Management Plan is used by some people to help them pay off multiple debts without getting into financial hardship. In this guide, we will fully explain what you need to know about informal debt management plans and how they work with a simple example. 

If you currently have arrears with more than one company, a debt management plan might be the ideal debt solution for you. Read this guide and get debt advice to find out more. 

Can I repay my debts informally?

People with debts have the option of using formal and informal debt solutions. A formal debt solution is a method that is legally binding, whereas an informal debt solution is not legally binding and can be cancelled by the debtor or the creditors if preferred. 

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. 

Don’t worry, here’s what to do!

There are several debt solutions in the UK that can be used to improve your finances. Choosing the right way to tackle your debt could save you time and money, but the wrong one could cause even more harm

It’s always best to find out about all your options from a professional before you take action.

Fill out the 5 step form to get started. 

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.

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.

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. 

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. 

Feeling like Chandler?

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Does a DMP show up on a credit check?

Creditors should add a “DMP flag” to your credit report when you are making reduced repayments as agreed in a DMP. This tells anyone checking your report that reduced repayments are being made as part of an informal agreement. 

However, your credit score will still be negatively affected by making reduced repayments than what was originally agreed with creditors. 

Get advice before applying for an informal DMP

An informal Debt Management Plan is just one of many debt solutions that could be used to help people gradually get out of multiple debts and arrears. It’s important to get debt advice before committing to one debt solution and to ensure that a DMP is the most appropriate solution for your specific circumstances. 

There are paid-for debt advice services you could use, or you could get fee-free debt advice from a UK debt charity. 

Informal Debt Management Plan – Conclusion

We hope you found the information you needed about informal Debt Management Plans here. For more details about these debt solutions, check out some of our other DMP guides here on MoneyNerd. They’re all 100% free! 

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Are you struggling with debt?
Are you struggling with debt?
  • Affordable repayments
  • Reduce pressure from people you owe money to
  • Stop interest and charges from soaring