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You are here: Home / An overview of debt solutions / Debt Management Plan (DMP) – how does it work

Debt Management Plan (DMP) – how does it work

Are your debts are large and the interest being added is a real killer?  So you are running to stay still?

A Debt Management Plan (DMP) could be right for you! Many people are in this situation because of cost of living problems.

How a DMP works:

  • you pay the firm one affordable payment a month. This is flexible;
  • the DMP firm divides up your payments between your creditors;
  • almost all creditors freeze interest and don’t add charges, so your debts drop a lot faster.

This article is a Guide to DMPs, so you can decide if debt management is right for you and your family, It looks at what happens in a DMP and how DMPs can be speeded up.

Contents

  • Overview of DMPs
    • What debts go into a DMP
    • How much will you pay each month?
    • How long will your DMP last?
    • Low payment DMPs
  • Do you have a better alternative?
    • Common worries
    • Check out the other debt solutions
  • How to set up a DMP (and some variations)
    • Use a DMP firm
    • Choosing a DMP firm
    • Payment arrangements – like a DMP that you run yourself
  • What happens during a DMP?
    • In the first year
    • Credit ratings
    • Mortgages
    • If things aren’t going well
  • Speeding up your DMP

Overview of DMPs

What debts go into a DMP

Most non-priority debts can go into a DMP. This includes credit cards, catalogues, BNPL, overdrafts and unsecured loans. Also most debts that have been sold to a debt collector.

Secured debts – mortgage, car finance – can’t go into a DMP and need to be paid in full.

Other priority debts such as rent arrears, energy bills and council tax arrears, can’t go into a DMP. You need to get payment arrangements for these in place first. Then you can pay the rest of your debts through a DMP.

The DMP will only get low payments at the start but these can increase when you have  repaid some of the priority debts or the car finance.

How much will you pay each month?

This is a key question. Pay too much and you won’t be able to keep up the payments. Pay too little and your DMP may never end.

DMPs don’t tie you into a long-term formal contract. As your life changes, you can pay more or less.

The best way to find how much you would pay to a DMP is to contact StepChange. Be very realistic about your expenses and say Yes when they ask if you would like to save a small amount each month. Many people don’t even need to talk on the phone, as one person said:

I was imagining having lots of difficult conversations trying to justify my expenditure and explain my debts etc but it was actually the complete opposite. All I did was spend an hour or putting a budget together on the Stepchange website, then send off the forms and I was done. I’m now two months down the line and I’ve already paid off more than I had in the previous two years.

StepChange are not pushy. The choice is yours if you want them to set up a DMP.  But knowing the amount you would pay a month is important – without it you can’t tell how much difference a DMP will make to your life or how long the DMP will last.

How long will your DMP last?

Here is a calculator that lets you put in how much you will pay at the start, make a guess at what this may change to later and see how that affects how long your DMP will be.

Your DMP could end up being longer, if things don’t go well, or shorter if your finances improve. Which is more likely?

DMPs can also be speeded up, see below.

Low payment DMPs

DMPs are a great option if you expect your situation to improve. Some examples:

  • it may take a few months to get a new job after redundancy;
  • you are currently on maternity leave;
  • the car finance will finish in a few months;
  •  you have priority debts such as council tax arrears or rent arrears. Here you make large payments to the priority debts and only small ones to your credit cards and loans. When the priority debts are gone, you can pay more to the other ones.
  • you want to make affordabilty complaints.

In these situations, it doesn’t matter how low the DMP payments are at the start.  They can even be just £1 a month – this is called a token payment Debt Management Plan. Because your DMP payments will get larger, the time to complete the DMP will reduce a lot.

Do you have a better alternative?

Common worries

You may have lots of concerns about starting debt management, including whether interest will be frozen, if you will get lots of calls from creditors, your credit record and how it will affect your partner.

Read The main worries people have about debt management for a detailed look at all of these. Many of them aren’t problems for most people!

Check out the other debt solutions

If your DMP sounds too long then one of the other debt solutions may be better, so look at these comparisons:

  • Long DMP or bankruptcy
  • DMP or an IVA (it’s best to avoid an IVA unless you have a house with equity or a car worth over £2,000)
  • a Debt Relief Order  (a DRO could be your best option if you are renting and your debts are less than £30,000).

You don’t have to rush into a decision, but if your debts are getting larger every month, then don’t delay – or you will just have a bigger problem to solve.

How to set up a DMP (and some variations)

Use a DMP firm

If you use a company to set up your DMP, this works as follows:

  • you phone the firm and they talk through your debts and your income and expenditure. Be realistic about your expenses;
  • you agree on a monthly payment with the firm;
  • you stop paying your debts and set up a monthly payment for this amount to the firm;
  • the firm writes to your creditors and every month divides up your monthly payment between them
  • there is an annual review to see if your payments should change, but you can ask for changes earlier if you want.

Basically you make one payment per month to the firm and the firm handles everything else. 

Choosing a DMP firm

There are three major providers of free DMPs in Britain: StepChange, Payplan and CAP. If you go to one of these, all your monthly payment goes to pay off your debts.

Never use a DMP firm that charges a fee. These commercial debt management firms do exactly the same as free firms – except their fees mean less goes to your debts so the DMP goes on for longer. Fee-charging DMPs are no better than free DMPs.

See Choosing a Debt Management company for more details.

Payment arrangements – like a DMP that you run yourself

If you only have one or two creditors, just phone or write to them to reach an agreement about lower monthly payments and freezing interest. This is often called making payment arrangments.

When you have more creditors, read Running your own DMP which explains how the free CABmoney facility can help with this by doing the calculations and generating the letters.

The advantages of doing this yourself and not using a DMP firm are:

  • you may feel you are more in control;
  • you don’t have to explain your finances to a DMP firm.

The disadvantages are:

  • you have to talk to your creditors at the start and when anything changes;
  • some creditors only set up arrangements for 6 months, so you have to keep doing this;
  • you have more payments to make each month;
  • it has the same effect on your credit score as a DMP.

What happens during a DMP?

In the first year

Before it starts, you should cancel the payments to your creditors.

You may continue to get letters and calls for a month or two at the start. These do stop! Keep telling them you are in a DMP and don’t agree to pay them any more money.

This is what one reader said about his StepChange DMP:

It’s taken a bit of getting used to but it it has made things much easier to manage as the debt payment is now more like a mortgage payment. It gets taken as soon as I’m paid and then I can easily budget what’s left, rather than the daily juggling between cards that I had before.

If you get a letter saying your debt has been sold to a debt collector, this doesn’t change your DMP at all. Tell your DMP firm and they will switch to paying the new debt collector instead.

After a few months, check to see if all your creditors have frozen interest. Most do! Many people will find all their creditors have. But if you have one or two creditors that haven’t, read What to do if a creditor doesn’t freeze interest. You can complain – leave a comment below if this is a problem.

Your DMP should be reviewed at least once a year, see Having an annual DMP review for details.

Credit ratings

If you are thinking of a DMP or are in the early stages, readHow a DMP affects your credit rating.

When you are close to the end or have already finished your DMP, read this, which has ways to speed up the clean-up process: My DMP is ending – will my credit score improve?

Mortgages

If you are worried about a mortgage:

  • Can you get a mortgage in a DMP?
  • Most people in a DMP can get a new fix from their current lender, see Can I get a new mortgage fix with poor credit?

If things aren’t going well

If you are struggling, talk to your DMP firm, don’t wait for your annual review.

Debt management is flexible so if things don’t go well you have options, including changing your payments or stopping the DMP and choosing a different debt solution:

  • Can your DMP monthly payment be reduced if you are struggling?
  • also look at other options such as a Debt Relief Order. Your DMP firm will be able to tell you if you should think about switching to a different debt solution.

Don’t borrow more money to try to get by – on a DMP you will find it very difficult to be able to repay new debts.

Speeding up your DMP

A DMP may sound long at the start but there are various ways to speed it up:

    • affordabilty claims in a DMP -you can make these claims in a DMP. They are a very good idea – if you win an affordability complaint, your DMP will finish sooner. Many people starting a DMP should look at affordability complaints about the debts in the DMP and any others that have been settled in the last few years.
    • Full and Final Settlements – when a DMP has been running for a while and some debts have been sold to debt collectors, they may take a lower settlement offer.
    • your pension and your DMP – your pension doesn’t have to be used to pay your debts. I am not recommending this, but it is an extra option.
    • What happens if you inherit money? The good news is that you can choose what to do with the money. Making settlement offers is a good idea!
    • if your DMP has been going for years, has a lot longer to go and your debts have been sold to a debt collector, read When to ask for a CCA agreement? and think if that may help. The older your debts are the more likely it is to work.

More articles:
Debt Camel articles about debt management

Articles about debt management plans

Can you reduce your DMP payments?

No credit checks for new mortgage fixes?

Comments

  1. Shanu says

    August 22, 2016 at 10:45 am

    Hi
    Currently I’m under debt mangement plan & my husband also has nearly £40000.00 debt now.we have a morgage as well.if he join to debt mangement plan will it affect for our morgage.we have 4 years old children.

    Reply
    • Sara (Debt Camel) says

      August 23, 2016 at 7:49 am

      Hi Shanu – that is a lot of debt your husband has and as you also have problems I think you need some good debt advice. I suggest you and your husband should both talk to StepChange https://www.stepchange.org/, they can help you look at what you best options are.

      But basically you have no chance of being offered a mortgage with that amount of debt. And you won’t be able to save up a deposit with it either. So you need to look at practical ways to get the debt down, not worry about some mortgage in the future that is just a daydream.

      Reply
  2. Sophie Murphy says

    January 9, 2018 at 2:07 am

    Hi, I have an outstanding account with pay day I’m for over £1200 .
    I need to start repaying it alongside other loans which are outstanding.

    What’s the best way to go about this, will they send debt collectors?

    Reply
    • Sara (Debt Camel) says

      January 9, 2018 at 8:04 am

      Hi Sophie, I suggest you contact StepChange about setting up a plan to repay your outstanding debts. See https://www.stepchange.org/.

      In addition, I suggest you put in affordability complaints to Payday UK and any other payday lenders or other lenders who gave you loans which you couldn’t afford to repay without borrowing again. See details including template letters here https://debtcamel.co.uk/payday-loan-refunds/. This may result in the interest being removed from your outstanding balance to Payday UK, making it much quicker to repay.

      Payday UK aren’t going to send debt collectors to your house and they can’t send bailiffs unless they first go to court to get a CCJ. And a lender can’t take you to court whilst you have an affordability complaint being considered.

      Reply
  3. Michelle says

    April 23, 2019 at 1:33 pm

    I have debt of 26000 and now going to StepChange to try to set things out do you think £400 a mo th will be enough to set up a plan?

    Reply
    • Sara (Debt Camel) says

      April 23, 2019 at 2:04 pm

      If interest is frozen on all your debts, that would take about 5 years to pay off. That is a sensible sort of time – if it was 2 years you probably don’t need a DMP at all and if it was 10 years then you should be looking for a better solution.

      So the question is, is £400 what you can realistically afford to pay? StepChange will be able to to advise on that

      Interest normally is frozen – see https://debtcamel.co.uk/creditor-wont-freeze-interest/.

      Reply
  4. Harry says

    March 8, 2020 at 1:47 pm

    Hi

    Just wondering, if I go into a dmp what will happen to my guarantor with regards to my George banco loan?

    Reply
    • Sara (Debt Camel) says

      March 8, 2020 at 1:56 pm

      guarantor loans are complicated … have you read the article about guarantor complaints? https://debtcamel.co.uk/how-to-complain-guarantor-loan/. That’s the best place for questions.
      PS the good news is the Ombudsman is upholding 90% of guarantor loan complaints!

      Reply
  5. Samantha says

    December 28, 2020 at 12:34 pm

    Hi me and my Mum are looking for advice, we are both currently in DMP plans through StepChange. I am out of work long term due to mental illness, but my Mum is still trying to get work. I owe around £17,000 where as my mum’s is only around £11,000 (credit cards/loans)
    I currently pay £70 and my mum is paying £60 a month, we are wondering if the DMP is best solution long term? as it’s going to take more than 10 years for both of us to clear the debt.

    My Mum has a private pension pot from working with the NYCC, which currently sits undrawn, but she’s concerned if we consider insolvency options she may loose it? what are the options here please for us to consider for clearing this debt?

    Reply
    • Sara (Debt Camel) says

      December 28, 2020 at 1:00 pm

      How long has the DMP been going for?
      How old is your mum?
      Are you renting, is the tenancy in her name or joint? private rented or council/housing association?

      Reply
    • Samantha says

      December 29, 2020 at 7:07 am

      Hi thank you for he reply we’ve had it for about a year but it will take over 10 years plus for both to clear I think mine works out at 19 and my mums is 15 years

      We are not renting as we live at my Dads address which is housing association and the tenancy is in his name we are trying to move but it’s difficult with us being on benefits and we’re too low priority on local housing list.

      Reply
      • Sara (Debt Camel) says

        December 29, 2020 at 9:50 pm

        does your Dad live there or has he moved out and you can just stay there? The reason I am asking is it is a lot harder to rent privately if you have had a debt releif order in the last 6 years.

        Insolvency is obviously an option for you if you are long term out of work because of mental health problems. That can never be affect your mum’s pension.

        How old is your mum? Is her pension a “money pension” or is it linked to her last salary?

        Reply
        • Samantha says

          January 5, 2021 at 8:57 pm

          Hi thank you so much for your response apologies for not being able to get back to you

          We are allowed to stay as long as we like, we contribute to household costs and split broadband costs etc
          We were wanting to move out but I’m not longer sure if that would be a viable option due to my health issues and now being on ESA and a disability benefit.

          My mum is currently 54 but she will be 55 in July, I believe it was linked to her salary? the pension was provided through the NYCC themselves when my mother was employed by them, she no longer works for them and she no longer pays anything into it as the contributions would be taken out of her salary monthly.

          If it helps we live in the UK and hers would be classified as an Employer’s Pension

          Reply
          • Sara (Debt Camel) says

            January 5, 2021 at 9:27 pm

            In that case I think you should both talk to National Debtline about your options, they can look at your incomes and expenses in detail – phone 0808 808 4000.

            Your mum’s pension pay not be a problem at all, but as she is coming up to 55 it would be better to get advise immediately, not delay.

  6. Mike_p says

    August 29, 2021 at 11:52 pm

    I’ve recently started a debt management plan with Stepchange and it’s the best thing I’ve ever done. I put it off for a long time as I was imagining having lots of difficult conversations trying to justify my expenditure and explain my debts etc but it was actually the complete opposite. All I did was spend an hour or putting a budget together on Stepchanges website, then send off the forms and I was done. I’m now two months down the line, all my lenders have agreed to reduce interest and I’ve already paid off more than I had in the previous two years.

    It’s taken a bit of getting used to but it it has made things much easier to manage as the debt payment is now more like a mortgage payment. It gets taken as soon as I’m paid and then I can easily budget what’s left, rather than the daily juggling between cards that I had before.

    Reply
    • Sara (Debt Camel) says

      August 30, 2021 at 7:22 am

      That’s a very helpful report for other people reading this.

      Reply
  7. Vicki says

    October 27, 2022 at 4:25 pm

    Hi,
    I am with a debt management plan. I pay £90 a month and they take £45 of that in fees. They aren’t that invasive, we go through any changes annually and I sent in my wage slips. I have 4 years left on my DMP but it could be 2 if they weren’t taking a fee. Could I leave the dmp and contact one of the resources you have suggested?

    Reply
    • Sara (Debt Camel) says

      October 27, 2022 at 4:34 pm

      Who is the plan with?
      You can easily switch to StepChange and not pay fees.

      Reply
  8. Martin says

    January 15, 2023 at 4:31 pm

    Hello! I already have a DMP in place which is managed by StepChange. Can I still use your refund templates to request refunds for irresponsible lending? I think some of my creditors should have not approved my loan/credit card applications as I was already knee deep and was behind with payments through other providers. Would that affect my DMP? Thanks!

    Reply
    • Sara (Debt Camel) says

      January 15, 2023 at 6:16 pm

      yes you can! In many ways this is the ideal time to make a claim as the DMP puts you in a safe financial position.

      Making this claim won’t affect your DMP – if you win a claim for a debt inside the DMP it will be reduced / cleared and your DMP firm will rejig the DMP. If you win a claim for a debt outside your DMP (eg one that has already been repaid) then you get the cash. You can then use that to settle debts in the DMP if you want.

      And no creditor is going to say – as you have made a complaint i wont accept your DMP offer – that never happens.

      Reply
  9. Claire says

    March 6, 2023 at 9:51 pm

    Looking to get a dmp with Step Change but worried about remortgaging when our fixed rate ends November 2025. I can pay a good chunk (£600) to the DMP each month and can up that next year when our childcare cost reduces, so that’ll help speed things up. Just scared of coming to remortgage and it’s a huge issue, have read mixed responses on this, some people say they look at the bigger picture and if I’ve managed the DMP well it’ll be ok. Should I just speak to them directly? Thanks

    Reply
    • Sara (Debt Camel) says

      March 6, 2023 at 10:13 pm

      When your mortgage fix ends, will you just need another fix or a remortgage eg borrow more, change the term etc?

      Reply
      • Claire says

        March 6, 2023 at 10:21 pm

        Hi Sara, yes we want to move at some point so would it be detrimental to have a DMP if needing to remortgage and borrow more? We’d likely stay with current provider who we’ve been with for 10 years and never missed a mortgage payment

        Reply
        • Sara (Debt Camel) says

          March 7, 2023 at 6:20 am

          Well it depends when you would be likely to want to move When you get the next fix or several years later? And how fast a DMP would clear the debts.

          So how large are the debts that would go into the DMP?

          Also can you make the minimum payments if you don’t have a DMP? How much of the debts are credit cards are loans and how much cards or catalogues?

          Reply
          • Claire says

            March 7, 2023 at 8:45 am

            It’s saying it’d clear in 4 years 7 months but as I can pay more next year that’d reduce. We may want to move at next fix yes. The amount is £33000 thats across 2 x credit cards and then loans. I can manage to afford everything apart from the credit cards now as their 0% rate is expiring so the minimum payment is huge

    • Sara (Debt Camel) says

      March 7, 2023 at 4:57 pm

      Any arrangements to pay less to your creditors will hurt your credit score. A payment arrangement you make is just the same as a debt management pln through StepChange.

      it is unlikely that you have any options that won’t hurt your credit score. (A consolidation loan for cards coming off 0% will almost certainly cost more a month than you can afford and you may simply be rejected as it would be unaffordable. )

      Most mortgage lenders (97% of the market) have agreed with the Treasury that if a borrower only wants a new fix, not a new mortgage, that the lender will not make any affordability / credit checks for the new fix.

      However if you want to move when your current fix ends, then the DMP is very likely to be a problem with getting a new mortgage from Barclays or any other high street lender. And the same would apply if you set up payment arrangements yourself rather than a DMP.

      Most lender will want to see that your DMP has finiashed for some time beafore a new mortgage application. One year used to be standard – but during the pandemic that went up and it may be longer at the moment as the mortgage market is in a state iof flux.

      I am afraid you cannot assume your loyalty to Barclays will help you in getting a larger mortgage.

      But the bottom line is what other option do you have? I assume you do not want to sell now and repay yopur debts… Then if you cannot make the minimum payments the best thing is to minimise the impact and try to pay much more into the DMP next year so that it finaishes as soon as possible.

      It may be you have to take a new 2 years fix in 2025 and move at the end of that. But that is a long way off, you have to do the best you can now for your familiy.

      Reply
  10. Kerrianne says

    May 6, 2023 at 1:20 pm

    Hi I have just started a DMP with stepchange my debt is just under £16000 , I am paying £354 per month which will increase towards end of the year but at present it’s expected to be finished in 3 years.
    Is it likely that creditors won’t accept the offer of a DMP? The thought of CCJ’s and court makes me very anxious but I will be paying what I can afford worked out by stepchange.

    Reply
    • Sara (Debt Camel) says

      May 6, 2023 at 1:34 pm

      Most creditors just accept DMP offers. You can complain if they don’t freeze interest and not add charges. Come back and say if you have a problem in practice, very few people do.

      The minimum payments were more than £354 a month?

      Reply
  11. Wilma says

    November 9, 2023 at 1:28 pm

    Hi Sarah I am in thr process of setting a DMP with stepchange. They have asked for my payslip and a bank statement. In my bank statement i still have a remaining balance of £750 is that going to be a problem? Are they gonna ask me to move it towards payment? I am saving it for emergencies

    Reply
    • Sara (Debt Camel) says

      November 9, 2023 at 3:33 pm

      No I don’t think that will be a problem

      Reply
  12. Jonathan says

    November 27, 2023 at 9:51 pm

    This is on the table for me, but my bank where I am in credit card debt and in my overdraft said to hold off for now as I can make the minimum payments myself. But it is still on my mind (though unemployed right now and waiting for Universal Credit).

    My question is that I have moved back in with my parents. Could this put their place under threat?

    Reply
    • Sara (Debt Camel) says

      November 28, 2023 at 9:36 am

      No. Absolutely not. And it won’t affect their credit records either (assuming you don’t have a joint account with one of them!)

      Your bank can’t give you debt advice. How many days a month are you in your overdraft? How much did you use it before you lost your job? Roughly how large re your debts?

      Do you expect to get another job quickly? Do you have a car on finance?

      Reply

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