What is a Debt Management Plan?

A Debt Management Plan (DMP) is an arrangement that enables people who are in debt to a number of different creditors to make one monthly payment each month through a debt agency or charity, who will in turn pay back the other creditors an agreed amount.

If you are considering starting a DMP then you should contact an organisation such as the National Debtline or the Consumer Credit Counselling Service (CCCS), which will help to arrange the most suitable programme for you.

Arranging a programme involves examining your monthly income and comparing it to all the necessary expenses you have to make in order to come up with an amount that you can reasonably be expected to pay back each month. It will also include listing all of the debts that need to be repaid in the order of importance to deduce which should be made a priority.

The debt agency or charity will then use this information to negotiate with the individual creditors in order to come up with a repayment arrangement. They will often negotiate for interest rates to be frozen and for extra charges to be stopped, and will come up with an agreed amount that the creditors can expect to receive each month.

If the arrangement is agreed upon - and it should be noted that there is no legal obligation upon the creditors to agree to anything - you will then be required to make one monthly payment to the debt company handling the DMP, which will itself make payments to all of the creditors involved.

The average DMP lasts between three and five years, depending on the level of debt. This will provide you with a set timeframe in which you will become debt free, which can provide a real weight off your shoulders.

It is always better to go with a charity or another debt management service that offers DMPs for free. There are lots of companies who charge a fee for the service, but paying these fees will mean a greater amount of time will be required to pay off your debt and you should try to avoid paying out any extra money if possible.

It is important after entering into a DMP that you make a real effort to meet your monthly payments because if you miss a payment then your credit score will be affected. However, simply starting a DMP will not affect your credit rating, although it is likely to affect your ability to get credit in near the future.

Once you are making the monthly payments, your situation will be reviewed on a regular basis. If your financial situation improves then it is possible to arrange to increase the payments in order to reduce the time that it takes for you to pay the debt back. Alternatively, if your situation deteriorates then you may be able to reduce the payments.