How many DMPs succeed and how many fail?

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.

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