Debt Management Plans (DMP) - Carrington Dean

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Debt Management Plans








This page will address common questions surrounding debt management plans – commonly called DMPs for short.

What is a Debt Management Plan?

A Debt Management Plan (DMP) is an informal solution for your unsecured debts. Unsecured debts are debts which are not attached to any of your assets, such as your car or house. Typical debts included in a DMP include your non-priority debts – e.g. credit cards, loans and store cards. You cannot include priority debts i.e. mortgage or rent arrears in a DMP, so you need to make sure you have a way to deal with your priority debts before you set up a DMP.

How does a Debt Management Plan (DMP) work?

A DMP allows you to renegotiate your monthly payments so that they are more manageable. Your monthly payment is divided between your creditors. Like an IVA or Trust Deed, the payments are based on how much you can realistically pay. However, as the full amount must still be rapid, smaller repayments will result in a longer repayment period. With a DMP it is unlikely that any of the debt you owe will be written off.


To be eligible for a DMP, you need:

  • a relatively steady and stable income
  • to be able to afford monthly contributions, even after you have paid any secured debts, and tax or rent arrears
  • a relatively good relationship with your creditors. If you have regularly failed to make payments, or have other issues between you, they may not agree with your proposal.

Ultimately, DMPs work best for those who are struggling, but can still afford to make reasonably sized, but smaller, regular repayments.

If you meet these criteria, you can choose to either negotiate yourself, or ask a third party, such as a debt charity, to help you. Once you have decided, there are three steps to your DMP.

Step 1: How can you afford?

Carefully work out how much you can afford by creating a budget. Look at your documentation, such as payslips and bank statements, to get the best understanding. Your creditors may also like to see them as proof. Using this documentation, you can work out your full income and expenditure, so that you know how much monthly surplus you can offer to your creditors. Don’t forget to include non-regular payments, taxes, secured debts and tax or rent arrears.

Step 2: Show your creditors

The next step is to approach your creditors with your offer of what you can pay. The more evidence you supply, the more likely they are to understand and agree. The more confidence they have in you the better. They could even agree to freeze your interest and charges. If they reject your proposal, it may be a sign that you require an alternative, more formal solution, such as an IVA, or a Trust Deed. There is also a risk that they may lose confidence in your ability to pay, and take legal action against you.

Step 3: Stick to your agreement

Now that your creditors have agreed, you need to keep up with your new payment schedule. To make this easy as possible, you need to make sure you put a lot of time, care and effort into Step 1. If you have used a third party, your payments may be made to them, and they will distribute it to your creditors. If your circumstances change, it is a good idea to communicate with your creditors as soon as possible.



What are the advantages of a DMP?

  • As it is not a formal solution, it does not appear on any public insolvency register. This means more security for your personal date, as insolvency registers often require your name, address, & occupation.
  • It can help you to build up a good relationship with your creditors. By demonstrating that you are actively dealing with your debts, they are more likely to trust you, and be understanding if you have any change in circumstances.
  • Due to this better relationship, you are likely to have less contact with your creditors.
  • Your quality of life is likely to be hugely improved by making your monthly payments more affordable. You are likely to feel more in control of your finances, and may even begin to be able to save a little to prepare for any future financial emergencies.
  • DMPs are often considered to be a flexible debt solution. This means that, should you have a good relationship with your creditors, your arrangement can adapt to suit your needs or changing circumstances. This could allow for any temporary drops in income, or faster repayments of larger amounts, should your circumstances improve.

What are the disadvantages of a DMP?

Despite these benefits, Debt Management Plans are not ideal for all situations. There are a few disadvantages which can make it undesirable:

  • Unlike with a Trust Deed, or an IVA, there is no set time limitations and you will not be able to write off any of your debts. This means it may take many years to pay off your debts.
  • Other debt solutions will obligate your creditors to freeze your interest and fees. This isn’t the case with a DMP, so your debts can continue to grow.
  • If your creditors reject your offer, they are likely to have done so because they do not believe that you can pay. If they feel this way, they may start more serious proceedings, like bankruptcy.
  • Although it is possible that you will have less contact with your creditors, they can still contact you. Other solutions make it legally binding that your creditors cannot contact you.
  • Some third parties charge you to organise a DMP. This can mean it will take even longer to fully repay the debts

Is a Debt Management Plan legally binding?

A DMP is not legally binding. This means that you are not tied in for a minimum period and can cancel anytime.

However, as it is not a formal, legal solution your creditors are not bound by the agreement. While it may be possible to negotiate with your creditors to have your interest frozen as party of your DMP, this is not guaranteed.

Like many debt solutions, a DMP can provide you with peace of mind and the feeling of security. However, you will still be contacted by your creditors, which many find to be the most stressful aspect of being in debt.


How long does a Debt Management Plan last?

DMPs can vary in length significantly, but tend to be in the region of 5 to 10 years. The length of a DMP will depend on the individual circumstances. Factors which affect the length of a DMP include:

  • The level of debt

The more debt you have, the longer it will take to pay off. Higher levels of debt tend to lead to longer-lasting DMPs.

  • How much you can afford to pay

This is calculated by subtracting your essential monthly living costs from your monthly income. What is left is known as your disposable income. If you can manage higher monthly repayments, you will usually clear your debt quicker.

  • If your creditors agree to freeze interest

Some creditors will agree to freeze interest and fees on your debts to help you pay them off. If they agree to do this, the length of your DMP can be significantly reduced. Remember that creditors are not obligated to do this though, and even if they do it could only be temporary.

  • Whether you or your creditors cancel the DMP

As a DMP is not legally binding, both you and your creditors have the potential to stop it at any time. This could end up increasing the time it ultimately takes you to repay your debts.

Do Debt Management Plans affect credit?

Being on a debt management plan will more than likely affect your credit file and score. This is because you could be paying less than the minimum repayment amount you agreed to when you initially took the debts out.

There is not a specific place in your credit report to register that you are on a DMP. But each account that is included in your DMP can have a marker added to it that shows repayments are being made through a DMP. A creditor can only add a DMP marker to your debt if they accept our offer of payment. This may reduce your chances of getting credit if you applied for it while on your DMP, as it would show that you have difficulty keeping up with repayments.

However, if you kept up with your DMP payments, the DMP would look better on your credit file than unpaid debts or debts that you were only making infrequent payments towards.

While in a DMP and trying to repay your existing debts, you shouldn’t take out any further credit. Doing so, could be a “breach” of your DMP agreement, as you are not in a position to make the minimum payments on the debts you already have.

How long does a Debt Management Plan stay on your credit record?

Your credit record holds a file of your credit activity for the last six years. This means that evidence of a DMP – details of court action, defaults or missed payments – will not be removed from your credit record until six years after your final payment was made.

Debt Management in Scotland takes the form of the Debt Arrangement Scheme. This is a statutory solution that offers more protection to Scottish individuals than informal debt management plans provide for all other individuals in the UK


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