Debt Management Plan FAQs

Some frequently asked questions and answers about Debt Management Plans (DMPs).

Is a Debt Management Plan (DMP) suitable for me?

If you have unsecured debts that you can no longer afford to repay then a DMP could be the best option for you. To qualify you will need to owe money to more than one creditor and have enough disposable income to be able to make regular payments each month. 

Debt Management Plans are one of the most common ways in which people in the UK sort out their debt problems. However since everybody's financial circumstances are unique it is best to take professional advice to find out if it really is suitable for you.

To find out if a Debt Management Plan is the right option for you use our online debt solution calculator.

What debts can be included in a Debt Management Plan?

Only unsecured debts can be included in a DMP. Examples of debts that can be added to a Debt Management Plan include -

  • Personal loans
  • Credit cards
  • Store cards
  • Bank overdrafts

Debts that are secured against your assets do not qualify, for example mortgage and secured loan repayments.

What are the advantages of Debt Management Plans?

Debt Management Plans have a number of benefits -

  • Your debt repayments are reduced to an amount you can afford
  • You only have to make one payment each month and so your finances are easier to manage
  • Interest and charges on your debts can be stopped in most cases
  • The debt management company will deal with your creditors on your behalf
  • The arrangement can be changed to suit your circumstances

Do Debt Management Plans have any disadvantages?

DMPs do have some disadvantages and there are occasions when they won't be suitable for you -

  • It may take you longer to repay your debts
  • Your credit rating will be affected at the very least in the short term
  • Creditors aren't obliged to freeze interest and charges
  • Only unsecured debts can be included in the plan and so other payments such as mortgage and utility debts don't qualify
  • Unlike in an IVA, the agreement is not legally binding

Is a Debt Management Plan a loan?

No a Debt Management Plan is not a loan. It is simply a way to restructure your debts to make them more affordable to you. You continue to repay your existing debts but payments are restructured and set at an amount you can afford on your current income.

How long do Debt Management Plans last for?

There is no one fixed length for DMPs and so how long it lasts will depend entirely on your circumstances. Since every person's circumstances are unique there can be a big difference in how long a DMP goes on. Some arrangements will run for several years with others ending after just a few months.

How long the Debt Management Plan lasts will depend on several factors including -

  • How much you owe
  • How much you can afford to pay each month
  • If interest and charges on your debt are frozen
  • Whether your debt problems are long term or temporary
  • The continued agreement of your creditors

Will a Debt Management Plan affect my credit rating?

The DMP itself will not be shown on your credit file. However because you are no longer making the full contracted repayment of your debts your credit rating will be affected.

Any time you fail to make a debt repayment it will be recorded on your credit file. If you are entering into a Debt Management Plan it is likely that you have previously missed a payment and so your credit rating will already have been affected. However if your DMP allows you to pay off your debts more quickly then your credit rating will be affected for a shorter period of time. Being seen to be making regular payments through your plan can also have a positive effect.

Is interest frozen in a DMP?

Creditors are not obliged to freeze interest and charges when you enter into a Debt Management Plan. However in many cases debt management companies are able to successfully negotiate a stop in interest charges. Creditors are more likely to act favourably if they see that you are making every realistic effort to repay your debts.

Can I change my Debt Management payments?

One of the benefits of DMPs is that they are informal arrangements and so can be altered to suit changing circumstances. If you have started a Debt Management Plan and would like to either increase or decrease your payments then you should be able to do so. Your debt management company will arrange this for you.

What are the alternatives to a Debt Management Plan?

Although a DMP can be beneficial for many people, it won't be the best option for everyone. Depending on your financial circumstances there are other alternative debt solutions that may be more appropriate.

The most common alternatives include -

  • Individual Voluntary Arrangements
  • Bankruptcy
  • Debt Relief Orders

Your Debt Management Questions Answered 

Based in Lancashire, Royal Exchange provides independent financial advice and debt help to individuals throughout the UK.

If you have any questions about Debt Management Plans or would like to find out more about how you can solve your debt problems call us today on 0800 028 4422. Alternatively complete the form on this page to request a Free Debt Assessment.