If you want a debt management plan (DMP), where your creditors are asked to freeze interest and accept a lower monthly payment, which debt management firm should you use?
This article looks at the things to consider. It is a big decision as you are going to have to deal with this company – including discussing the details of your personal expenses and income – for several years. Pick the right DMP firm and it feels like you have an expert on your side.
So should you use a fee-charging firm or a “free” one?
All DMP firms have the same basic approach:
- you make a single monthly payment to the DMP firm;
- the payment will be the same size whichever firm you use, because they all use the same guidelines from the regulators.
- the DMP firm then distributes the money to your creditors;
- a fee-charging firm takes its fee out first, so your creditors get less;
- a “free” DMP firm doesn’t, so all your money goes towards your debts.
I’ve been talking to debt advisers and people in DMPs about why some people choose to pay fees.
The issue reminds me of listening to Brits and Americans discuss health care – both sides have very strongly held views! I thought it would be interesting to use this as a comparison. 
Do you get a better service if you pay fees?
For healthcare, you may well get a smarter waiting room, a private room in the hospital, better food etc. None of that is very relevant for DMPs.
Sometimes you can “jump the queue” by going private, getting an operation or other treatment faster. The equivalent for a DMP would be having your debts paid off sooner. But if you are paying fees for a DMP, less of your monthly payments are going to your creditors, so a fee-paying DMP takes longer than one from a free DMP company.
The only way that a fee-charging DMP could finish sooner than a free one is if the fee-charging company was better at getting interest frozen on your debts. I haven’t seen any evidence to suggest this is the case. Most creditors agree to freeze interest in a DMP whatever company is running the plan for you.
You may sometimes get extra treatment options if you go private with a health problem. In contrast, with debts you are likely to get a wider choice of alternative debt solutions if you go to a free firm – for example, you could have a Debt Relief Order set up. Very few commercial firms help with DROs because they wouldn’t make any money out of them.
What about the success rate? This is a hard question to answer for DMPs. There aren’t any statistics published for DMPs – you can’t even find out how many are set up by a firm each year, let alone how many finish! It’s not even clear what statistics would be helpful, see How many DMPs succeed and how many fail?
When doctors and surgeons are asked about their “success rates”, these can be hard to measure because some doctors take on the harder cases where you would expect less good outcomes. The same applies for DMPs. You will see a much higher percentage of clients with benefits problems and things like rent arrears in a free DMP firm than in a commercial one.
That doesn’t mean the free firms aren’t good at handling “easy” DMPs, it just means commercial companies don’t want to touch the difficult cases because they wouldn’t make money from them.
Worries about free services
Some people in debt choose a fee-charging DMP firm because they are suspicious about free services, suggesting various possible problems.
To people working in the free sector – as I am – these perceptions often simply seem wrong.
Here are some things I have heard said:
- “it’s better to speak to expert professionals, not volunteers”
This is a misunderstanding. The two biggest free DMP providers, StepChange and Payplan don’t have any volunteers at all. Speak to them and you are always dealing with professional debt advisers.
- “free DMP companies are funded by the banks”
Most free DMP companies get most of their income from “fair share” arrangements which are paid by the creditors. But this doesn’t make a difference to what you would pay each month. And it doesn’t affect the advice you are given.
The commercial companies don’t let you pay less each month, they have to put forward the same monthly offer that a free DMP would – otherwise the creditors would refuse to freeze interest.
- “Someone I pay will work in my best interest”
So you would rather trust a fee charger that gets a lot of their business by buying names from cold-callers and whose staff may get a commission from signing you up for a DMP than a charity that will advise you if you have better options than a DMP and can help you with those?
Which firm is really working in your best interest and which just wants your money?
- “free isn’t possible, there must be hidden charges”
This is simply wrong – there aren’t any hidden charges for you.
- “if you are paying someone, they will be on your side and not be judgmental”
Wrong. Well hopefully the commercial firms are on your side, but so are the free DMP firms!
- “I want my information kept completely confidential”
Of course – and that is exactly how it will be handled by a free DMP firm. All debt management companies, free or charging, supply your creditors with a summary of your income & expenditure. But apart from this, the free DMP companies are not going to tell the taxman, the DWP, your creditors, your employer, your partner or anyone else anything about your affairs.
- “a commercial firm will deal with everything; with a free one you get some help but you still have to do the work”
Another misunderstanding. A free DMP works in exactly the same way as one you pay for: the DMP firm deals with your creditors and you just make one monthly payment to the DMP firm.
Most people don’t make an active choice
Most people can’t name one debt management firm, and very few will be able to name two or more. People are usually choosing a DMP firm at a point in their lives when they are under pressure from creditors and feeling very stressed. Unsurprisingly, most sign up to the first firm they come across that promises to make their financial pain stop, to halt the letters and phone calls from creditors and worries about court and bailiffs.
Some creditors will signpost to one of the free firms. Other people will ask friends or come across advertising. And commercial firms spend more on advertising than free DMP firms.
To suggest that many people “choose” a particular DMP firm doesn’t seem accurate. The word “choice” suggests that there were at least two alternatives and there was a reason to go with one of them, not that someone signed up with the first firm they talked to without considering anything else.
Who should YOU choose?
Most people are happy with their choice of debt management company and often are very grateful to it for helping them out of their debt problems. I don’t care if I could have got it cheaper, it has worked well for me is a pretty common reaction.
But if you are about to choose a DMP firm, or if you have to change DMP firms because your old firm is being closed down, then why wouldn’t you go for a free one. Because your DMP will end sooner with a free DMP firm as all your money every month goes to pay off your debts.
There are no advantages to paying fees and no downsides to free… So I suggest:
- look at how DMPs compare to the alternatives;
- look at my list of good places for debt advice and then talk to one of them about a DMP.
And if you are in a DMP that is charging you fees, switch your DMP to StepChange who don’t! Or if your DMP is with Gregory Pennington, complain and ask them to stop, as GP has already stopped charging fees for new DMPs.
How many DMPs work and how many fail?
Worried about starting a DMP?
Affordability claims in a DMP – a good idea!
David says
I used Stepchange, which used to be called Consumer Credit Counselling Service. Never understood why they changed to the new generic name.
I was on my debt management plan for 8 years. It was a pain to adjust to living off so little money, but that first year was a relief, after the endless calls that I used to receive from people chasing money. They suggested I could go bankrupt, although I believed my creditors behaved unreasonably in many ways, I was the one ultimately to blame for making so many bad financial choices.
To be finally completely debt free has been wonderful and I really appreciate all that Stepchange did for me in offering options of getting out of a financial pickle.
Mehere says
I find this article very interesting. I got into debt when my partner left me & I was forced into a job change with a massive salary reduction. I was recommended Thinkmoney by a friend for a DMP. After the initial set up they told me it would be a 6yr term to clear my debts. I was still on it after 8!! Very unhappy as I had not managed to clear a single debt, & on one particular debt my payments were not even covering the interest!
I spoke to them, totally useless, so I got in touch with CCCS (now stepchange) & they were amazing, they went through all my bits & told me I would basically never be debt free they then talked me through my options & in my circumstances advised me of a DRO & helped me get it up & running.
Thinkmoney were not too chuffed obviously at losing their fee & cheekily told me they could have done a DRO for me. Too little too late I said. Anyway after the 12 mnths all wiped, even though given what I’d paid for those 8yrs more than paid all the debts it was a huge relief.
Andy says
Hi,
Would it be possible ) for somebody who has been on or is on a Stepchange DMP to get in contact with meso that I could ask a couple of questions? Mainly regarding privacy..My concern is being swamped with letters from anybody and everybody through the post at home. I don’t really want that.
Lou says
I’m also on a DMP with StepChange and think it’s all very confidential.
I haven’t got swamped with letters. When I initially set the DMP up I had a couple from StepChange and then I get monthly bills from some of my creditors but not all. And also get some default notices which companies have to send. The number of letters have been reduced significantly. You can also ask your creditors to use email rather than post if you prefer.
Hope this helps.
Sara (Debt Camel) says
Hi Andy, you probably will get some letters in the first month or two whilst the DMP is being set up, but they do stop. This article looks at worries people have about starting a DMP : https://debtcamel.co.uk/worried-dmp/
Loby says
Can I ask peoples opinions which company is beest step change.or PayPlan… I am looking at a dmp….
Sara (Debt Camel) says
As no one will have used both companies, you aren’t likely to get anything helpful back… almost everyone really likes their DMP company even the ones that are pretty dreadful. But StepChange & Payplan are both pretty good and neither charges fees. How much do you owe? Hoe much do you think you can pay each month?
Lisa says
I went to Payplan originally with my debt, they tried to charge me for setting up my plan. They wanted to take the first 2 payments as their fee, this was only made clear to me once i received the initial paperwork after discussing all the debts i had. I then went to Stepchange and have been with them ever since.
(Sorry to jump in)
Sara (Debt Camel) says
Was this a long while ago? Payplan don’t do that anymore!
Lisa says
It was a while ago, if they dont do it anymore thats great as they would of been my preferred company as creditors are more agreeable to cancelling interest and charges with them over Stepchange, although ive not had hardly any interest applied while ive been with Stepchange.
Sara (Debt Camel) says
Creditors treat them both the same. Most people don’t have any problems with interest being added in a DMP.
Loby says
My debt is around 16k
I am in a dmp with a.company I pay 200 a month and they 41 fees
I looking a free company and.just wanted.to know what opinions were..
I have sent.complaints about affordable to all 12 lenders yesterday just waiting game now…. fantastic site this, thank you
Sara (Debt Camel) says
OK, so you know all about DMPs, you just (sensibly!) want to avoid the fees. I suggest you look at their websites and go with whichever you fancy. With any luck your payday loan complaints may get your DMP balance down!
Katie says
I had a DMP with Payplan from 2006-beg of this year. I found them to be great and they never charged me any fees or interest.
lorr says
I had a DMP with a company that charged me £70 a month, I eventually contacted all the companies myself and stopped the DMP. Every company I dealt with were great. It wasnt easy to phone them but Im so glad I did.
Sara (Debt Camel) says
The DIY option is perfectly possible and many people find it works well. See https://debtcamel.co.uk/how-much-work-dmp/ for more about this.
Mia says
Im currently with Stepchange, and have been for a few years. Must say they have been great.
Only thing is that I have, stupidly, got back into the payday loan spiral so have accumulated additional debt!
5k worth !!
I am anxious to let Stepchange know, in case the cancel my existing plan.
But I know I wont be able to afford the extra pdl payments this month.
Should I set up a separate DMP, maybe with Payplan…or is this not a good idea.
Any advise will be greatly appreciated.
Great site, by the way
Sara (Debt Camel) says
Payplan (and any other reputable DMP firm) would not take that case on.
What went wrong with your DMP that you needed to borrow more money?
You have to go back to StepChange and tell them and ask them to include the new payday loans in the DMP. You also need to cancel the CPA payments to the payday loans – whatever happens you can’t keep borrowing.
Once your situation is stabilised, then you can look at whether some of your payday loans were “unaffordable” so you can make complaints and either get interest refunded or removed from the balance you owed. See https://debtcamel.co.uk/payday-loan-refunds/
If you had older payday loans that were repaid or that are already included in your DMP, you should also be making complaints about those.
Mia says
Thanks Sara for your prompt response.
I feel so stupid getting back in this trap again.
I have used payday loans since 2011-2014. Have had so many. Borrowing from 3-4 companies at a time, to pay each other. Hence resulting me to face up to my debt issue and going onto a dmp in 2014.
All was going well until 6 months ago, when I got addicted to online gambling for about a month. Started with £10.00 here and there, then into £100’s. Then needed to borrow as my wages were soon disappearing. Actually couldn’t believe I could get another payday loan due to me being on a DMP. But used other companies which were not obviously one of my creditors.
Now I have loans from My Jar, QuidMarket, Cashfloat, Peachy, Uncle buck and 2 from Lending Stream .
Do you think Stepchange will accept this ?
Sara (Debt Camel) says
If you just had a mad couple of months and can show you haven’t been gambling since, I hope Stepchange will.
Mia says
Thanks again. I will speak to StepChange tomorrow
Mia says
With regards to irresponsible lending..what an interesting read!
I may try and complain. I have most emails especially from Quickquid, with payment reminders, confirmation of loans etc going back to 2011. Only I don’t have bank statements, as I changed my bank. Would this hinder my complaint at all ?
Sara (Debt Camel) says
Definitely complain – you have nothing to lose and possibly a lot to gain!
You can get bank statements from closed accounts- lots of people have worried about this but found it wasn’t difficult in practice. QQ will ask for your bank statements (they always do) but you can just tell them to consider your case as it stands – you only need to get bank statements for the Ombudsman.
Mia says
Just checked, as my old bank account is on my DMP, and managed to get access.
Its a shocking view ! All those transactions, only weeks apart.
Definitely a wake up call seeing it all in black and white, how much I borrowed and paid back.
No wonder I got into such a mess.
Sara (Debt Camel) says
indeed, lots of people say that they can’t believe how much they borrowed over the years.
So, StepChange tomorrow and make sure you cancel the CPAs to the current payday lenders.
Mia says
Yes. Fingers crossed.
Thank you so much Sara, you and this website have been a great help
Mia says
Just a quick update. Spoke to Stepchange amd they’re were fantastic. Not judgemental at all. So relieved. All my debts now included. I wont make the same mistake again!
Now to see if I can look into complaining about irresponsible lending.
Sara (Debt Camel) says
So pleased for you!
Mel says
I was with a Debt Management Company Pegasus who ceased trading in Feb 2020. Before they closed I was sent a letter saying they had settled 3 of my debts and 3 still outstanding. 2 of the settled debts were with Cabot and they have been sending letters about setting up a new payment plan because they are still outstanding and are threatening CCJ. I have spoken to Cabot who say to my horror that these debts are not settled. I obviously cannot get in touch with the Debt management company to find out any info. My debts are over 10 years old. Please help
Sara (Debt Camel) says
Can you give the exact legal name of this debt management company please?
Have you asked Cabot for a statement of account for each of these debts so you can see what has been paid?
Do you remember what sort of debts these were – credit cards, loans, overdrafts, mobile bills or whatever?
Mel says
Hi Sara it was Pegasus Legal 13 Greenfield Rd, Harborne, Birmingham B17 0ED. When I spoke to Cabot they went through the payments on the accounts and the last payment from Pegasus was just my normal monthly amount they used to make on my behalf. One was a sainsburys loan and the other was a next store card.
Sara (Debt Camel) says
How much were you paying them a month? How much was actually going to each of those debts?
Did Pegasus say they were trying to challenge the debts? Or settle them?
What are the three other debts that re outstanding?
Mel says
I was paying them £130 per month the 6 creditors got paid different amounts but added up to £50 of it. There fee was £50 and £30 went into a settlement pot. They were going to settle them as far as I was aware. The remaining 3 I am still paying are credit cards
Sara (Debt Camel) says
oh dear. That sounds like it might have been the “debt settlement model” which I looked at here: https://debtcamel.co.uk/compass-debt-management/. It’s a very risky form of debt management model.
And in this case I don’t think Pegasus was regulated by the FCA as a debt management firm.
As all these debts are old, one thing you could do is is send Cabot and all the other 3 creditors a request for a copy of the CCA agreement for each of the debts. Read https://debtcamel.co.uk/ask-cca-agreement-for-debt/ which explains how to do this.
If the creditors can’t produce the CCA agreement then the debt is unenforceable in court and you can simply stop paying.
Mel says
Thankyou for all this information Sara I really appreciate it…. Looks like I have been ripped off well and truly… How stupid do I feel. I will ask them for the CCA and see what happens there.
Sara (Debt Camel) says
if it turns out that several can produce the CCA agreement, I suggest you talk to a reputable DMP firm such as StepChange and get a proper debt management plan set up to repay those (but not any debts were the CCA is missing). See https://www.stepchange.org/how-we-help/debt-management-plan.aspx – it’s one where all your payments go to your creditors.
Mel says
Thankyou so much its been invaluable advice I will let you know how I get on
Alex says
Hi!
I had a DMP with Baines & Ernst in circa 2010 – 2012. A current defaulted debt on my credit file is 1 I thought they were paying back; unfortunately the company no longer exists. Do you know of any contacts to resolve this? Thanks
Sara (Debt Camel) says
what sort of debt was this?
who is the current creditor showing on your credit record?
you thought it had been repaid in the DMP?
have you recently been contacted about it or just checked your credit record and seen it?
Jon says
I was late on a PayPal instalment. They contacted me to help and I agreed to their suggestion that the company, Payplan, contact me. They have done this and think they will be able to help with my debts which total £10,000. All debts are in my name, except a bank account, which is in joint names with my wife. She is aware of our financial situation, but I am concerned that if included in any debt management programme, that the £1,000 overdraft which we have will be withdrawn. Payplan indicates they would have to include this overdraft in any programme, as each company owed money should be treated equally fairly. Wondered if you had any observations. Thanking you, Sara.
Sara (Debt Camel) says
What are your wife’s finances like? Does she also have debts?
Samantha says
I’m in a dmp and I can only afford to pay £122 pm but £45 of that is their fees. Is that right
Sara (Debt Camel) says
Who is your DMP firm?
Samantha says
Financial Wellness group
Sara (Debt Camel) says
Ah.
They have now stopped charging fees for new DMPs. I have been unsure if they are still charging fees for older ones. Was this fee charged last month? If it was, I’ll suggest what you can say to complain….
Sara (Debt Camel) says
here is a new article on this subject https://debtcamel.co.uk/gregory-pennington-fwg-dmp-fees/