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!
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:
- you are making affordability complaints – a DMP puts you in a safe financial situation while these go through. If a lot are upheld, your Mp will be speeded up a lot. If few are you may need to look at other debts options;
- if you are off work looking after a sick family member;
- you are 7 months pregnant, or
- you need to move within the next few months.
In all these situations, a very low-paying DMP can give you a break from worrying for six months or a year until things settle down.
Even if it would take 25 years to repay your debts in a DMP like this, it doesn’t matter because that isn’t what your DMP is for.
It isn’t going to carry on at that repayment level for many years.
Sometimes a DMP ends for other reasons
There may be a change in circumstances which means the DMP is no longer needed or no longer possible.
Perhaps a relative offers some money that lets you make a full and final settlement offer to some or all of your debts. Or you get some affordability refunds that reduce the debt total in your DMP a lot.
Here the DMP has worked really well for you even though it wasn’t the DMP as it was planned at the start that has 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 these.
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? Often there isn’t much difference between these and a DMP.
Without a list of how many DMPs and payment arrangements are set up, discussions about how many “fail” and how many “succeed” have to be largely anecdotal.
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. When the DRO criteria changed in summer 2021, some people on a low paying DMP became eligible for a DRO and could switch to one.
Almost all creditors will freeze new interest and stop adding charges in a DMP. If you are unlucky and one of yours doesn’t, you can challenge this – because getting that stopped could make a big difference. with the advent of the new Consumer Duty, it may be very hard for a creditor to justify a decision not to freeze interest and charges.
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.