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.

The Pros and Cons of a DMP

DMPs provide an effective way for people who have numerous debts to become debt free in a set period of time. However, they should still be carefully considered before you enter into one. As with any debt repayment scheme, you will have to weigh up the pros and cons before making any arrangements in order to ensure that it is the right course of action for you.


  • Interest rates will generally be lower for a DMP than they are for the separate loans. This is because the agency handling your DMP will negotiate better interest rates to make repayments more manageable.
  • The debt agency will also try to negotiate the freezing of any late fees and extra charges that your creditors may otherwise impose, meaning the amount of debt will not rise.
  • Being on a DMP will provide you with the peace of mind of having a fixed timetable in which you will become free from debt. Whether it is spread over three or five years, if you continue with your payments then you will know that by the end of the programme you can make a fresh start.
  • Being on a DMP means that you will only be dealing with the debt agency, meaning you will be free from communication with all creditors and will not receive any more phone calls or letters from them.
  • Your monthly payments will generally be less on a DMP than if you were paying back all of the loans individually, allowing for a greater degree of financial freedom each month.
  • One of the best things about a DMP is the sheer convenience that it provides. Only having one regular monthly payment to make allows you to budget much more effectively.


  • In a DMP, creditors are under no obligations to freeze interest and stop making charges. Instead, it is the duty of the debt agency to negotiate with them and come to a suitable arrangement.
  • The DMP is not available for people who cannot afford to make their monthly payments. If you have too much debt and are simply unable to pay back a reasonable amount each month then a different solution will have to be sought.
  • If you decide to start a DMP and then discover that you cannot make your monthly repayments in the future, it could lead to serious problems such as bankruptcy.
  • A DMP is only available for certain types of debt, and does not include a number of loans including secured loans.
  • Although arranging to go on a DMP won’t damage your credit score, it will make it more difficult to acquire credit in the future.
  • The DMP is not a suitable option for long-term debt, and is mainly for those people who will be able to clear their debt in a short period of time.

Are you Suitable for a DMP?

A DMP offers a sensible way for many people to manage their numerous debts by combining them all into one monthly payment at the same level of interest, but it is not the solution for everyone. There may be a more effective programme to help you to sort out your debt problems, or indeed you may not meet the requirements stipulated for entering into a DMP.

If you are thinking about entering into a DMP, the first thing to do is to work out exactly how much you will be able to put aside each month to pay off your debts. This is deduced by subtracting your total essential monthly expenses, such as food and rent, from your total monthly income. The money that you have left over is the money that you can use to pay back your debts.

This process can either be done by yourself or with the help of a debt charity such as the Consumer Credit Counselling Service (CCCS), but whichever way you go about it you will have to come up with a figure and see if it is enough to make reasonable monthly payments. If you find that you are able to make a regular payment with the money you have left over then a DMP is probably a good option. If not, then you may have to look into alternative solutions to your debt problems.

For those that can make a regular monthly payment, the DMP offers a great way to become debt free within a set period of time. However, as a rule a DMP is generally only considered a good solution for people who find themselves in short-term financial difficulties. For example, if you are currently facing difficulties but are confident that your situation is likely to improve in the near future, then the DMP should be strongly considered.

If you do not think that your situation is likely to improve and that there is a chance you will not be able to make your monthly payments in the future, then it is probably best to consider an alternative debt management solution. The most serious consequence of failing to meet your payments could see you declared bankrupt, so only enter into a DMP if you are sure it is right for you.

There are also many requirements for people entering into a DMP that will have to be met. For example, many debt agencies and charities will stipulate that you must owe at least £8,000 in total, and that this must be owed to at least three different companies in order for you to be considered for a DMP.

On top of that, the types of debt that you have will be relevant in whether you can enter into a DMP. You should be aware that DMPs will not cover secured loans, such as loans taken out against your house, as well as certain other loans including student loans and council tax arrears.