There are a lot of uncertainties with a Debt Management Plan (DMP) – will your creditors agree to freeze interest, will the debt be sold on to a debt collector, how likely is it that you could get a CCJ etc. So it’s understandable that people often ask how many DMPs actually succeed? But this is a surprisingly difficult question to answer, for two reasons.
DMPs are not recorded
The Insolvency Service keeps a record of insolvencies, so we know how many people go bankrupt, chose a Debt Relief Order or an IVA in a year. The Ministry of Justice has statistics about the numbers of CCJs. The Bank of England keeps figures for mortgage and unsecured household lending. But DMPs are informal agreements with creditors and no-one is counting them.
The Financial Conduct Authority regulates firms that offer debt management plans. But even if they made the debt management firms report DMP numbers, that still wouldn’t pick up the large number of arrangements made directly between a customer and a lenders. This is a good option 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.
Also some of these arrangements can be very short term – a debtor phones up to say that they can’t make the payment this month but will be able to repay the arrears next month – is that even a DMP? Without a base list of how many DMPs are set up, discussions about how many fail and how many succeed have to be largely anecdotal.
DMPs can succeed even if they don’t repay all the debts
It’s not even easy for a firm that provides debt management plans to answer the question about their own “success”/”failure” rates. Many DMPs do get to the end and all the debt is paid off, as these tweets from StepChange and CAP celebrate:
Hi, Rachel here. We’ve just let 251 people know that their DMPs are finished and they’re finally debt free. Yay! pic.twitter.com/xIRQswkpvU
— MoneyAware (@moneyaware) December 3, 2014
— CAPuk (@CAPuk) February 22, 2016
But there can be many situations where a DMP that doesn’t clear all the debts has done exactly what it was wanted for – so it hasn’t “failed”. Sometimes the DMP will have been intended as temporary:
- you are made redundant but expect to find a new job in a few months;
- you are struggling on maternity pay, but will be all right when you return to work; 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, or you are 7 months pregnant, or you are homeless then a DMP can give a breathing space for six months until things settle down. In all these situations, it doesn’t really matter if the DMP looks as though it would be very long, as it is unlikely to carry on at that repayment level for many years.
In other cases there is 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 refund which let’s you make a full and final settlement offer – here the DMP has worked really well even though it hasn’t cleared your debts, because it will have persuaded your creditors to accept your F&F offer! Or perhaps you split up with your partner and can no longer afford to pay any debt repayments at all – here the DMP may originally have been a good choice but it hasn’t worked in practice.
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.
Very prolonged DMPs are not good debt solutions
Sometimes people get stuck in a debt management plan which seems never ending. Perhaps it was projected to be seven years at the start, but then income fails to keep up with inflation or there are a succession of unexpected expenses, so three years in it now looks as though at will take at least ten more years to complete. Or perhaps one of the creditors refuses to freeze interest – although this can be challenged it can’t always be changed.
It makes sense to review every DMP at least once a year to check it is “on track”. If it isn’t, then the other debt alternatives should be explored.
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 at the start.
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 a few months.