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What is a Debt Management Plan? Complete Guide 2022

what is a debt management plan

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

Being in debt can be off-putting. Moreover, it affects your credit score negatively. 

However, this issue can be resolved through a Debt Management Plan. This is an informal agreement between you and your creditors to assist you manage your debt issues.

In this article, I will describe in detail what a Debt Management Plan is and answer the most commonly asked questions about it.

What is a Debt Management Plan (DMP)?

A Debt Management Plan (DMP) is an informal agreement between you and your creditors to assist you manage your non-priority debts. These debts may comprise of bank loans, overdrafts, credit cards, student loans and store card debts etc.

Before you sign up for a DMP, you should choose a credit counselling agency to guide you with the task. Most of the organizations are nonprofit and they may offer credit counseling free of charge, while others may charge fees.

How do Debt Management Plans work?

The best thing about a Debt Management Plan is that you get to pay back in the form of set monthly payments. These monthly payments will depend on how much you can afford to pay back to your creditors each month.

Normally, you will make a monthly payment to your DMP provider and they will pass on the correct payments to your creditors.

You can either arrange a plan with your creditors yourself or get this done through a licensed debt management company for a fee. plan

Is a Debt Management Plan right for you?

A Debt Management Plan may turn out to be a good option for you if the following applies to you: 

  • You will be able to afford the monthly payments on your priority debts (such as mortgage, rent and council tax etc) and your living costs, but are barely able to keep up with your credit cards, bank loans and student loans etc.
  • You prefer that someone else deals with your creditors
  • Making one set monthly payment will be a pragmatic option for you

Benefits of Debt Management Plans

Some of the advantages of a Debt Management Plan include the following:

  • If the DMP you have planned is free, all of the money you pay will go towards paying off your debts
  • There’s only one monthly payment and this should be fixed at an amount which is  affordable for you in practice
  • You’re not legally tied into the agreement, so you have the freedom to leave the DMP agreement if you want to
  • DMPs are adjustable, so they can be adapted to suit your situation if your income or living costs vary.

Drawbacks of Debt Management Plans

It’s important to keep in mind that with a Debt Management Plan:

  • It will take longer than usual to repay your debts as you will be making reduced payments
  • Interest or charges may not stop on a DMP and thus could be added to your debt, making the total debt you repay higher
  • Making reduced payments on a DMP will eventually affect your credit rating, even if your creditors may be content and accept a DMP
  • Your creditors could still take action against you, such as passing your debt to a collection agency or starting action against you in court

How does a Debt Management Plan affect you?

A Debt Management Plan may affect you in some ways:

  • A DMP could affect on your credit rating, regardless of whether your  creditors are content with your Debt Plan Management
  • When you’re on a DMP, generally creditors will consent to not charge interest or such expenses as an offer of generosity. However, some of them may not be that gracious, so you should understand that they’re not under any obligation to stop charging fees
  • DMPs can be modified to suit your circumstances if your salary decreases or everyday costs increase
  • You’re also not lawfully bound into the agreement, so you can leave the DMP agreement at any time, on the off chance that you need to
  • Creditors can also reject the DMP offer, and add interest or changes to your debt
  • As you’re taking more time to reimburse the debt, this may increase the total debt you owe

Managing a DMP

A DMP also requires you to self-manage

In a DMP, you can never miss a payment or pay less than the amount agreed upon.

If for any reason whatsoever your payment is late or short, your creditor can drop out of the program you have agreed upon and demand the entirety of your debt. 

Many people are in difficulty financially because they have trouble making payments on time, so they end up dropping out of DMPs because of this strict criteria regarding the schedule.

Criteria for a Debt Management Plan


Some companies will charge you:

  • A setting up fee
  • A handling fee every time you make a payment

Make sure that you understand the costs of your plan and how you will be paying for it.


You may qualify for a DMP if you meet the following:

  • You cannot afford the repayment of your existing unsecured debts
  • You can afford to pay lower payments each month
  • You can afford to repay those debts in full in a reasonable period of time


Your plan can be cancelled if you do not pay your repayments on time.

Information you must have before signing the contract with your DMP provider

Before you sign a contract with your DMP provider, you must have the written information about:

  • the service you’re being offered by them
  • the length of your contract with them
  • the total cost of the service you’re being provided with or, where this is not possible, an estimate of the cost
  • any charges that you can be made to pay for cancelling the contract during the cooling-off period or if you want to end the contract at a later point in the future
  • any other costs you may have to pay for and when will these have to be paid
  • how this may effect your credit rating
  • how your payments to the provider be will allocated, that is, how much will be taken in charges by the provider and how much will be paid to your creditors
  • the time slot within which the provider will pass the money to your creditors and the date of the first payment

Make sure that you fully understand the terms and conditions of the contract.

Furthermore, all DMP providers must follow certain rules and regulations  laid down by the Financial Conduct Authority (FCA). These apply to anyone providing DMP services, whether or not they charge a fee.

Frequently Asked Questions (FAQs) 

How long does a DMP last?

The duration of your DMP depends on:

  • How much debt you owe.
  • How much you can afford to pay off of your debts each month.

DMPs are flexible. The more debt you owe, and the less you can afford to pay off each month, the longer will be the term of your DMP. 

However, if you get an increase in your income, or reduce what you’re spending, you may be able to increase your monthly payment, which may eventually reduce the length of your DMP

How is a monthly DMP payment worked out?

By taking a look at your budget a DMP provider can work out how much you can pay off of your debts each month. 

Your priority household bills and living expenses are most significant, and the money left over after paying these costs will go into your monthly DMP instalment.

Debt advice charities don’t charge a fee for setting up or supervising your DMP

However, there are some fee-charging companies that will add a fee to your monthly debt instalments.

These monthly instalments must leave you with enough money to cover your living costs and a sustainable quality of life for you and your family.

How long does a DMP remain on your credit file?

Your debts will stay on your report for six years, starting from the date on which they’re paid off or defaulted. 

A DMP means you’ll repay your debts more slowly, as a result your score may be negatively impacted for longer.

How can you get out of a DMP?

A DMP is not legally binding, so you can terminate it if you feel it isn’t working properly for you. 

However, you may not get a refund of the fees you have paid and you’ll need to make sure you have some other way of dealing with your outstanding debt problems.

Is a DMP legally binding for you?

No, a DMP is not legally binding for you.

You can terminate your DMP at any time, and you don’t have to make a legal commitment when you start a DMP.

Generally, you have to sign a DMP agreement form. This gives the DMP provider the permission to contact your creditors on your behalf. However, the agreement will not be legally binding.

Is a DMP like a consolidation loan?

No, a DMP is an informal agreement between you and your creditors to help you manage your non-priority debts.

On the other hand, a consolidation loan is a form of credit that you take out in order to pay off the debt you already have.

Will your DMP financially affect your partner or any other people living with you?

Your DMP won’t affect you or your partner until and unless you have joint financial products or joint debts associated with them. 

This could be something in the form of a loan, a bank account or household bills that are in your name and your partners.

Can I get credit when I’m in a DMP?

You should not take out any further credit while you’re trying to repay your remaining debts through a DMP. Doing so could be considered a breach of your DMP agreement, as you are not really in a position to make the minimum one monthly payment on the debts you already owe.

What are the Best Debt Management Companies?

Some of the best Debt Management Companies are:

  • Greggory Pennington
  • Debt Advisory Line
  • National Debt Help
  • Step Change
  • Independent Debt Management 
  • ACME Credit Consultants Ltd. 
  • Pay Plan Live again
  • Harrington Books 
  • Money Plus

Where do you go to get free debt advice?

The Money Advice Service has information on organisations that can give you free debt advice and it informs you where you should go to get free debt advice.

Which debts can I pay off with a DMP?

You can mainly use a DMP for non-priority debts.

These include the following:

  • Overdrafts
  • Personal loans
  • Bank or building society loans
  • Money borrowed from friends or family
  • Credit card, store card debts or payday loans
  • Catalogue, home credit or in-store credit debts.

Which debts can’t I pay off with a DMP?

You cannot use a DMP to pay off your priority debts.

These include the following:

  • Court fines
  • TV Licence
  • Council Tax
  • Gas and electricity bills
  • Child support and maintenance
  • Income Tax, National Insurance and VAT
  • Mortgage, rent and any loans secured against your home
  • Hire purchase agreements, if what you’re buying with them is essential.


All in all, a Debt Management Plan is a recognized method to get your debt issues solved from a financial conduct authority. 

With a DMP, you will pay just one affordable repayment every month, rather than managing multiple debts from different creditors or an amount of money that might be beyond what you are able to afford. 


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