If you are thinking about a Debt Management Plan (DMP), you may want to know how many DMPs succeed, and how many run into problems.
This turns out to be a surprisingly difficult question to answer!
Celebrating DMPs that do complete
Many DMPs do get to the end and all the debt is paid off. Here are some recent announcements in late 2018 and early 2019 from the three main providers of free debt management plans in Britain:
A huge well done to 665 clients this month! #friyay pic.twitter.com/kWnzhdA7Dd
— StepChange (@StepChange) December 7, 2018
Another fantastic week of debt free celebrations – SIXTY-FIVE to be precise! That’s sixty-five families now looking forward to 2019 free from the burden of debt and back in control of their finances. Hooray! 😀 🎉 #debtfreemonday #newstart #freedom #goodnews #mondaymotivation pic.twitter.com/0q1koxWHxr
— CAPuk (@CAPuk) January 14, 2019
We’re proud to announce that last week helped 200 people to become free from debt (7th to 13th December) – just in time for #Christmas! #FridayFeeling pic.twitter.com/rdN8qT8dCX
— PayPlan (@PayPlan) December 14, 2018
But a DMP that doesn’t repay all debts may not have failed!
There are many situations where a DMP that doesn’t “complete” has done exactly what it was wanted for. It is hard to see these as failures.
Sometimes the DMP was always intended to just be for a short time:
- you are made redundant but expect to find a new job in a few months;
- you need a DMP for 18 months until your childcare costs will drop a lot; or
- when the house is sold you will be able to clear most of your debts.
Sometimes someone’s situation is too complicated for it to be clear what the best long-term debt solution is:
- if you are off work looking after a sick family member;
- you are 7 months pregnant, or
- you are homeless.
In all these situations, a DMP can give a breathing space for six months or a year until things settle down.
Even if it would take 20 years to repay your debts in a DMP like this, it doesn’t matter because that isn’t what the DMP is for. It isn’t going to carry on at that repayment level for many years.
Sometimes a DMP ends for other reasons
For other people there may be a change in circumstances which means the DMP is no needed or no longer possible.
Perhaps a relative offers some money or you get a PPI or payday loan refund which lets you make a full and final settlement offer to some or all of your debts. Here the DMP has worked really well for you even though it wasn’t the DMp that repaid all your debts.
It can also be sensible not to rush into selling the house or going bankrupt. Many people don’t feel ready to make such a final decision early on. After a year on a DMP they may have a better feel for what is going to be best for their family. If they are finding it quite easy to manage on a restricted budget, they may then be confident enough to commit to a five year IVA.
DMPs are not recorded
We know how many people go bankrupt, start an IVA or a DRO every year. There are statistics about the numbers of CCJs. But DMPs aren’t formal legal agreements and no-one is counting them.
The Financial Conduct Authority regulates firms that offer debt management plans. They could ask debt management firms to report DMP numbers.
But some people set up their own debt management plans by making arrangements to pay with all their creditors. This can work well for many people. See Is it a lot of work to run my own DMP? if you would like to know more about what you have to do. The FCA says lenders should treat these “DIY DMPs” in the same way as one run by a debt management firm. But no one can count them.
And what about the very large number of arrangements to pay made directly between a customer and their lenders? Some of these arrangements can be very short-term – a customer phones up a bank or a credit card to say that they can’t make the payment this month but will be able to repay the arrears next month. Should that ever be counted?
Without a list of how many DMPs and payments arrangements are set up, discussions about how many “fail” and how many “succeed” have to be largely anecdotal.
But very long DMPs are not good debt solutions
Although it’s not possible to answer the question, How many DMPs succeed? it is useful to focus on the biggest problem with DMPs – that they can just take too long.
Sometimes people get stuck in a debt management plan which doesn’t go well. An example:
Mr G’s DMP was expected to last seven years at the start. But his income didn’t keep up inflation so at his annual reviews, his month DMP payments were reduced twice. His DMP now looks as though it will take at least ten more years to complete.
It makes sense to review your DMP at least once a year to check it is “on track”. If it isn’t, then have a look at your other debt alternatives. Your DMP firm will discuss if it might be better to look at other options such as a Debt Relief Order. And if any of your creditors refuses to freeze interest, look at how you can challenge this – because getting that stopped could make a big difference.
But there’s no point in thinking too much about this at the start:
- most creditors freeze interest if they are presented with a reasonable income & expenditure sheet;
- most people find a DMP removes a lot of the pressure on them.
If you are worrying about whether a DMP will succeed, perhaps because your situation may change or you are just too uncertain to choose other debt solutions, I suggest getting on with setting up a DMP and planning to review it in six months. You don’t have to wait for your DMP firm’s annual review.
Matthew Cheetham says
it all depends on the definition of success. As DMP’s are now under FCA regulation it is a very important question because for them, any product is about successful outcomes. In reality, the individual circumstances need to be considered so there is no easy answer. Generally DMP fees should be less than the interest charges and there are other added services and benefits. So even if is a DMP with > 5 years,then the consumer should be better off. There may be instances where a DMP is scheduled to last longer than 10 years but in reality, the consumer expects their situation to improve so it is never intended to run the full length.
Sara (Debt Camel) says
I agree, the definition of “success” is not simple. Of course it is always better to not pay any DMP fees at all, either by running your own DMP or by going to a charity such as StepChange.
Ellen warren says
Hi I have 2 defaults registered in my name I am in a dmp which started in 2006 two creditors have whacked on defaults in 2014 even though I have kept up to date with my dmp. They did not notify me of the defaults and I have written to them to ask for copies which they have refused to. My question is are they allowed to do this seems unfair I wasn’t notified or given the opportunity to resolve before landing on my equifax report.
Sara (Debt Camel) says
Hi Ellen,
are they allowed to put on a default without telling you? No, you should be given a chance to resolve the matter first. BUT your best course of action now is not to argue about whether you have been told about the default, but to point out the default date should have been back in 2006-7 … in which case it will already have dropped off your credit record. This article https://debtcamel.co.uk/debt-default-date/ explains how to do this.
Another BUT – and its a big one – your DMP seems to be going on for a very long time. You really should consider if you now have better debt options available to you! After so long you may be able to get quite low full & final settlements accepted for example.
Emma W says
Good Evening,
I have just been recommended to start a DMP with Step Change they are projecting that it will be complete in 2 years and 4 months I’m presuming this is only if ALL my creditors agree to freezing interest. I have the list of things I need to do but struggling to find a template letter to send to all creditors informing them I am entering into this and asking for their help and support by freezing interest and charges. Up to now I have managed (just) to make payments on the accounts each month and have not fallen more than a month behind with any of them. I have so many concerns and worries my main one been that creditors refuse the DMP and threaten to take me to court.
Any help or advice on what to write in a letter would be most appreciated x
Sara (Debt Camel) says
Hi Emma, yes the timescale will assume that all creditors freeze interest. If one or more of them doesn’t, it will take longer.
A template letter – well first of all, you could ask StepChange to set up your DMP – no fees for you and they deal with all your creditors! But if you would rather do it yourself, then there are two good choices. First the CABMoney system was developed by Citizens Advice by is operated entirely by you – you put in your creditor, income & expenditure details and it will calculate the offers to each creditor and generate the letters – more about this here: https://debtcamel.co.uk/more-than-1000-people-using-cabmoneys-free-dmp-facility/. Or you could do it the hard way by working out the offers yourself and then using the template letter here: https://www.nationaldebtline.org/EW/sampleletters/Pages/Pro-rata-offers-%28sole-name%29.aspx
What if creditors refuse your DMP? Well they won’t refuse to accept your money :) They may refuse to freeze interest, in which case the DMP will take longer. Your projected DMP is very short so it isn’t going to be incredibly long even if this happens. And you can also ask them to reconsider, see https://debtcamel.co.uk/creditor-wont-freeze-interest/.
Will they take you to court? That isn’t likely to happen because your DMP is so quick they will all be getting a reasonable amount of money each month.
If StepChange have recommended this DMP then it is your best option. If you can’t make the minimum monthly payments, no other debt solutions beat a quick DMP.
Emma says
Thank you so much, that has definitely helped me to feel much better about the whole situation, my debt is about £20.000 but I can afford £750 each month repayments obviously a debt consolidation loan would have been a better option for my credit score but no lender will touch me given what credit I already have.