Debt Management Plan (DMP)
A Debt Management Plan (DMP) is an informal agreement between you and your creditors that has been negotiated, usually by a third party, to lower the monthly payments being paid to your creditors.
How much debt do you have?
How it works
A debt management company will complete an assessment of your income and expenditure to calculate your affordable monthly repayment. They will also need a full list of your creditors and how much you owe to them.
A debt management provider can either be a debt charity or a fee charging company. If you choose to use a fee charging company, there will usually be set up fees and a monthly management fee which will be included within your monthly repayment. The remaining funds are then distributed amongst your creditors on a 'pro-rata' basis which means that the creditors you owe the most to, receive the biggest proportion of the payment.
Advantages
One affordable monthly repayment
When you make a payment towards your Debt Management Plan it is distributed between your creditors on a pro-rata basis on your behalf.
You no longer have to deal with creditors directly
Most contact from creditors will be dealt with by the Debt Management company on your behalf.
Interest and charges may be stopped
Creditors may agree to reduce or freeze interest and charges, although this is not guaranteed.
Flexible informal solution
A DMP can be a useful temporary measure when you are struggling to pay your creditors due to a short-term change in circumstances. It is less restrictive than other, formal debt solutions.
Disadvantages
An informal solution with no debt forgiveness
Unlike other formal solutions (such as DRO, IVA or Bankruptcy), it is likely a DMP requires full repayment of your debts and could potentially be a longer term solution.
The length of the DMP is not fixed
How long the plan will last will be determined by the monthly amount you pay, the total amount of money you owe to creditors, whether your creditors agree to stop interest and charges, and whether your DMP provider charges a fee.
Your credit score may be affected
A Debt Management Plan is likely to have a negative impact on your credit rating, making it more difficult to obtain credit in the future.
No legal protection
Creditors can choose to continue with their debt collection process, which can lead to further action such as a default or County Court Judgement.