Debt Management Plans (DMPs) explained

DMPs have benefits as well as drawbacks, so you should look at all the debt solutions open to you, including Individual Voluntary Arrangements (IVAs), bankruptcy or Debt Relief Orders (DROs) before you make a decision.

Here we look at the features of a Debt Management Plan and help you decide if it's the best solution for you. As with all debt solutions and debt management companies, it's important to seek professional, impartial advice before making your choice.

A Debt Management Plan is an agreement between you and your creditors to pay all debts in instalments. Debt management plans are normally set up when you can only afford to pay creditors a small amount each month or make repayments in a few months.

You also may be able to freeze or suspend interest charges, which will help you clear your debts even faster.

Debt Management Plans are set up and managed by debt management companies (DMCs), who typically charge a fee for their services, which will be included in the repayments you make.

Both the National Debtline and the StepChange Debt Charity offer free Debt Management Plans.

Once your free Debt Management Plan is set up, you'll only need to make one monthly payment to the debt management company. The DMC will then share the money fairly between your creditors.

Debt Management Plans don't have a fixed lifespan. So your DMP could last for a number of years, depending on how much you owe and how much you can afford to pay each month.

Before you can get a Debt Management Plan, you'll need to work out your personal budget to see if you have enough cash to be able to make monthly payments.

Step 1: Make a list of your income (all the money you earn).

Step 2: Make a list of your expenses (e.g. rent or mortgage payments, household bills, childcare costs, travel and food). Remember that priority debts can't be included in your Debt Management Plan (see the section below on priority debts).

Step 3: Deduct your expenses from your income. The remaining money is your available income. Available income is money you can use to repay your debts.

You'll need a minimum of £100 per month to pay towards your DMP.

Debt Management Plans only deal with your credit debts (loans, credit cards, store cards, overdrafts), so you'll need to repay priority debts separately. You must include payments towards your priority debts in your personal budget; otherwise your DMP may not be accepted.

Priority debts include:

Your DMP can be set up and managed by a debt management company (DMC) or a debt charity. It's best to seek out an expert who can give you advice on Debt Management Plans and answer any questions you have.

If you decide a Debt Management Plan is the right option for you check the contract carefully before signing. Make sure that:

With a Debt Management Plan:

A Debt Management Plan may be unsuitable because:

There are many ways to break free from debt, but each option comes with drawbacks. Alternatives to a DMP include Debt Relief Orders, IVAs, debt consolidation and simple budgeting.

Any debt relief measure is a major decision that you should only take after seeking professional advice. The Citizens Advice Bureau, StepChange Debt Charity and National Debtline all provide free, impartial advice.