A reader said she was scared about starting a Debt Management Plan (DMP). Her worries were that her husband’s credit rating would be affected and that she would get lots of phone calls from creditors.
A DMP is supposed to help with your debt problems, not increase them, so I thought it would be useful to look at the common concerns people have before they start DMPs.
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DMPs are good debt options if your future is uncertain
Lots of people don’t know how 2021 will go for them. Will they still have a job? Will their business get back to normal?
A DMP can be a good holding option:
- if things don’t go well you can reduce your DMP payment or switch to some form of insolvency.
- if things improve you can increase your DMP payments or even end the DMP and go back to normal debt repayments.
So a DMP can give you time to recover, with less stress and pressure from your creditors. And it helps to know your debts are not getting worse with interest frozen and charges not being added.
Will I get lots of phone calls from creditors?
You should stop making your usual payments to your creditors when a DMP is being set up.
This sounds scary – aren’t you going to get a lot of phone calls?
You will get some calls or texts or emails in the first month or two. They may be asking why you haven’t paid them last month and would you like to pay right now?
Just tell them you can’t afford the payments, that your DMP firm will be writing to them and they will be making all payments from here on.
Don’t make a payment yourself! This complicates things and delays moving on to “the new normal” where your DMP firm pays and you don’t.
The creditor may say they can’t see a record of your DMP. That doesn’t mean anything is going wrong or the creditor won'[t accept your DMP – it’s just that the DMP hasn’t yet been recorded on all the creditor’s systems yet.
The phone calls really do stop! There are hundreds of thousands of people in Britain happily in DMPs – and they wouldn’t be happy if creditors kept ringing them.
Will my DMP be approved by my creditors?
A DMP can’t be vetoed by one or two creditors, there isn’t a formal vote on it.
Your DMP firm will send each of your creditors your income & expenditure sheet. This shows that you don’t have any spare money to pay them more.
It’s up to each creditor to decide whether to accept the offered monthly payment. They normally do!
But if they say it’s too low, don’t offer them more.
Talk to your DMP firm if you are very worried but this usually gets sorted pretty quickly.
Will interest be frozen on all my debts?
Your DMP firm will send your creditors an Income and Expenditure statement which shows you can’t afford to pay any more. S0 most creditors do agree to not add more interest and charges.
The proof of this is the very large number of DMPs that are running – people wouldn’t bother if their debts kept going up!
If a creditor is still adding interest after a while, you can write to them and ask them to stop – there are template letters here. And you can complain to the Financial Ombudsman if they don’t. but at the start of your DMP there is no reason to expect this will be a problem.
Will my debt be sold to a debt collector?
Possibly after a while. The longer your DMP goes on, the more likely this is.
But this doesn’t really matter:
- you don’t have to do anything – your DMP firm starts paying the debt collector the same amount instead;
- if interest wasn’t frozen before, it normally is by the debt collector; and
- if later you want to offer a full and final settlement, this is often easier with a debt collector!
So this isn’t something to worry about at all. It’s admin hassle for your DMP firm, not for you.
Will I get CCJs?
A creditor can go to court and get a CCJ even if you keep paying the monthly DMP payment.
But this is pretty rare. The court often sets your CCJ payment at the same level that your DMP payments is … and creditors know this.
The people that are usually taken to court for a CCJ are the ones that aren’t making any payments to their debts. Not the ones who are doing their best by setting up a DMP.
It’s very unusual at the start of a DMP for typical consumer debts such as credit cards, catalogues and loans.
The only common exception here is guarantor loans, where the lenders often seem to go to court – here look if you can make a complaint about the guarantor loan if you are the borrower or if you are the guarantor.
A CCJ is more likely if you have “business” debts, for example if you have given a personal guarantee. Talk to your DMP firm if you are worried about this.
If you are worried about charging orders, they are VERY rare, see Is my house safe? for statistics.
I’m not sure I can afford that DMP payment
A DMP is a big change for you. Before you had lots of debts to pay but also credit cards and an overdraft to use. In the DMP you are living on your income each month without borrowing and you only have to make a single debt management payment.
Some people find a DMP very restrictive but many people in practice don’t. Some people find they actually have more money to spend on everyday things without all the debts being paid first.
And if you have been juggling debt repayments for a long while it is likely to come as huge relief to stop and not be anxious about letters from debt collectors.
If you feel the DMP payment proposed is too high because you have specific costs that aren’t included – perhaps someone in your house has a disability – you need to talk to the firm about these.
Self-employment with a fluctuating income can be difficult, talk to Business Debtline about this situation.
DMPs are flexible, so if you have a temporary problem you can ask for your monthly payments to be suspended or reduced.
I would like to keep my overdraft outside my DMP
This isn’t a good idea at all. Including your overdraft in your debt management plan means that the charges will stop.
Yes you need to switch to a new bank account, but the major banks all offer good basic bank accounts to people with poor credit records.
If you aren’t using your overdraft at the moment, you may feel tempted not to switch bank accounts so you still have the overdraft there as a cushion. But DMPs are flexible – if you have a sudden financial problem, you can ask for your payment to be reduced or suspended for a few months.
Overdrafts are some of the hardest types of debt to pay off. And some of the most expensive!
Getting a clean start from your debts is one of the main aims of a DMP, and that includes overdraft.
How bad will my credit score be?
This depends on a lot of factors, including how large your monthly payments are and how long your DMP goes on for. See How does a DMP affect your credit score for details.
But if you can’t make the normal monthly payments to your debts because they are too large, there is no alternative that will leave you with a good credit record. See Don’t let credit record worries stop you taking action on your debts for details.
You can make arrangements with your creditors yourself, but these have exactly the same effect on your credit score as a DMP through a firm.
Your partner’s credit rating is only affected if you have joint accounts with them – a joint bank account, joint loan or mortgage. With no joint accounts, they won’t be affected just because you live in the same house, even if you are married.
Can I get a mortgage afterwards?
Yes. You will need to repay the debts in the DMP, then the exact timing will depend on how long it takes to save a deposit and what your credit record looks like. See Can I get a mortgage after a DMP? for details.
This may sound like it will take a long while, but if you have unmanageable debt, there aren’t any quick routes to buying a house!
Is there a better option for you?
If you are having problems repaying your debts, you often don’t have any nice options. If debt management will take too long and you don’t expect your situation to improve in the next few years, you should look seriously at your other alternatives. You may find the following comparisons useful:
One option which isn’t there is muddling through for another year or two and watching your debts carry on increasing…
However worried you are about a DMP now, the problem will be harder when your debts are bigger. Putting off a decision now is likely to be the worst thing you can do.
One big advantage of a debt management plan is its flexibility. If you aren’t sure, you can give it a try and see how well you can cope with that monthly payment.
If you haven’t yet talked to a debt advisor about debt management, give StepChange a ring. They run more DMPs than any other firm, and if a DMP isn’t right for you they can talk to you about your better alternatives.
what are formal & informal debt solutions
How many DMPs work and how many fail?
Choosing a debt management firm
Chloe says
I have done a DMP with CAP and I have never felt so much relief . I am less stressed and all my creditors have agreed for me to pay what I can afford. I am not worried about my credit score. I just want to start afresh and clear my debt. Don’t be afraid to start a DMP it is a great help. Always remember don’t spend what you don’t have. Live within your budget .
Sara (Debt Camel) says
Thanks for that comment Chloe – it can mean a lot to someone who is worried when it comes from a “real person” not just a debt adviser :)
Robert says
What was it like contacting your creditors?
Sara (Debt Camel) says
Chloe left that comment 4 years ago – I doubt she will see your question…
Hannah says
This is a great article I am now debt free but I did have a DMP for around 8 years I was really scared to enter into one but I had no choice I couldn’t keep up my my repayments and owed around £7,000
When I first contacted a DMP they explained I would be debt free in 5 years and need to pay £150 a month after going through my expenditure which sounded great and I opted to go with this I changed my phone number purely because I couldn’t deal with the stress if any of my debt companies phoned me I just gave it to my DMP company and contacted them if I received any mail from them as I am paying them to deal with my debt companies
I will be honest the £150 I was paying to the debt companies didn’t leave me much to do anything with for the month like going out with friends which you do need once in a while and 8 years is a long time, the good part about my debt company was that if I did have any emergencies to pay out for I could ring them and explain the situation and they would allow me to basically just pay my DMP fee and a small amount to my debts. The downside was they told me it would be 5 years until I was debt free and it wasn’t I’m not quite sure how it wasn’t but I think I have an explanation I was paying £150 a month and my DMP company took £50 of that a month for their fees so in actual fact I was only paying £100 a month off my debts so it took longer another negative was the DMP company fees went up every few years so I would look at going with a company like step change where every penny you pay goes straight off your debts
Also you do have to do a yearly expenditure review with your debt company every year which I also found stressful as I was in such a low frame of mind with my debts but I know this had to be done
My circumstances changed towards the end of my DMP I got a better job and could afford to pay more but I didn’t want my DMP company fleecing me every month so I picked up the phone with my debt companies and explained I could afford to pay more and they agreed to let me deal directly with them again and split my remaining debt into 3 monthly payments and here we are today debt free and the happiest I’ve ever been
Sara (Debt Camel) says
Without that extra £50 in fees, your DMP would have been a lot shorter as you say – it really does make a huge difference.
Hannah says
It certainly does in no way am I trying to slate the DMP companies they do STOP baliffs turning up at your door, they dealt with my creditors when I mentally couldn’t take no more but I think people need to see the bigger picture, I was paying £650 a year just for my DMP fees I wish they would of been going off my debt instead so I really would urge people to use the companies that do it for free you will be getting out of debt far sooner
Chloe says
My DMP is by CAP and they are free ( do not charge any fee) . Try CAP they might be able to help you.
Sara (Debt Camel) says
Yes, the 3 major free DMP companies are:
StepChange https://www.stepchange.org/Howwecanhelpyou/DMPdebtmanagementplan.aspx
Christians Against Poverty (CAP) https://capuk.org/i-want-help/cap-debt-help/how-cap-can-help
Payplan https://www.payplan.com/debt-solutions/debt-management-plans/
SB says
Hi Sara,
I have also just started a DMP with Stepchange and I do feel much better. Please could you advise me whether it’s worth me trying to claim any refunds from my creditors, who I do feel lent to me in a irresponsible manner?
I only started my DMP last month, is it worth waiting a few months or would it be ok to start now do you think?
Thank you.
SB
Sara (Debt Camel) says
Start right away! Your finances are now in a safe position, so it doesn’t matter if it takes many months, you won’t be under pressure to accept a poor offer.
SB says
Thank you Sara. I will do so today.
Steve says
Hi, we are thinking about uaing a DMP with step changes as the payments just seem to be getting out of control, but i know in the next 6 months i will need tp purchase a new car on finance and im worried this will be affected. Without the car i cant work so would be in a worse position, has anyone else had to purchase a car or any other big finance while on a DMP?
Thanks in advance
Steve
Sara (Debt Camel) says
Sorry a lot of questions…
What is your credit record like at the moment? Have you already missed payments?
How large are your problems, are you getting deeper into debt each month?
Do you have priority debts – rent/mortgage arrears, council tax, utilities?
You say “we” do you both have problem debt?
Are you buying or renting?
What car do you have at the moment, is there PCP that is ending?
Steve says
Hi Sarah, my credit rating at the moment is good, and although we haven’t missed any payments, we have maxed our credit cards and the overdraft, so more going out than coming in.
We have a mortgage which ee haven’t defaulted on but it’s getting close.
The ‘we’ is the wife and I so a joint account,
The car was on HCP which will end in a couple of months, we can either hand it back or pay the remainder in full or refinance. In addition to this our other car is on its last legs and will need replacing. We both have to travel some distance for work as well as having a young family, so both cars are essential
Sara (Debt Camel) says
It sounds as though you are headed for a total crash unless you take action such as a DMP with StepChange. If your cards and overdraft are maxed out and you are can’t meet the minimum payments and may default on your mortgage, then nothing is going to mean you have a good credit record in a few months so you can get another car on a good PCP deal.
Yes a DMP is not good for your credit record, but there are no magic debt solutions that are.
Now obviously I don’t know much about your situation. Perhaps you have some assets you could sell. perhaps there are ways you could cut back your expenses, possibly not nice ways, but you may have no nice options. I suggest you talk to StepChange and investigate how that would work for you and talk to them about your car situation.
david d says
Hi Sara, quick question please…
currently paying x14 separate lenders £12 per calendar month, total owed is approx. £15k. i’m comfortable with this for now.
I previously did this via StepChange for 12 months, but then had a few issues with them so in Dec 2018 I took back control and now maintain all accounts directly.
Peachy are now saying that because I no longer am in a DMP, they can add interest etc onto their account so despite around 2 years of repayments, my balance has actually gone up approx. £150 since the final payment via stepchange.
is this right, can they do this and what are my options please? I want to continue paying directly, not interested in DRO, IVA etc as I feel in the future I will be able to increase repayments regularly. but for now, i’m obviously not happy that i’m making payments but my balance is going up with Peachy!
many thanks in advance.
Sara (Debt Camel) says
how many loans did you have from peachy before this one?
david d says
just the one on this particular account, closing balance was £221.83p when I went into a DMP with StepChange. roll forward a couple of years and the balance is now £387!
Sara (Debt Camel) says
what date did you take this loan out and how large was it? how much have you paid to it so far, directly or through StepChange?
David d says
It was a PD loan for £250
Without checking the accounts for exact figures I’d say approx £144. I previously only paid £6 per month but my circumstances changed recently so I upped the payments. Originally took the account out early 2017.
Sara (Debt Camel) says
So my first thought is Gotcha! – and the second is you need to double check those figures very carefully. Let me explain.
You have two reasons to complaint to Peachy.
First that it is unreasonable and unfair to add interest just because you are not in a formal debt management plan. You can point out that the FCAs CONC rule 7.3 has a general duty to treat customers fairly and exercise forbearance and there is no reason to restrict that to formal DMPS and that 7.12.2 puts repayment plans from a customer direct or through third party company on the same footing.
Second that that appear to be in contravention of the payday loan price cap rules. You borrowed £250 and hence should never be asked to repay more that £500. yet you have paid £144 to the debt and you have been told that the balance is now £387 which would give a total repayment of £531.
That second argument depends crucially on your numbers being right. so you need to double or treble check them. If you are absolutely sure, then you I suggest you ask for all interest to be removed from the loan so you only repay 250-144 = £106 balance.
david d says
appreciate your responses, i’m pretty sure my repayment figures are accurate but i’m confirming with them as we speak and will then cross reference against my records and take it from there based on the two “options” above.
many thanks for this!
david d says
wait, no sooner had I sent this, I got a response from them saying the following:
“Please note that the agreement is only Temporary. When you are able to make more payment, the overdue interest will be removed.”
???
Sara (Debt Camel) says
ha! They still can’t breach the payday loan price cap.
Mr S says
I am currently in a DMP and have been for 2 year’s I have 5 credit cards with Vanquist, Barclays, MBNA, Bank of Scotland and Capital One. all of these accounts have DEFAULTS against them apart from Vanquist.
I am currently saving up and offering these company X amount to close the account which will be marked on my account as part paid which is I am happy with as they already have defaults against them.
My question is, Vanquist does not have a default against it, if and they have said once the account is paid in full it will be closed. If I offer them a part payment and they accept can they then put a default on the account against my credit file?
I only ask as they other account have has a default on since Feb 2019 so should drop off in Feb 2025 but I don’t want a fresh on on there meaning that won’t drop off for a further 6 years
Mike_p says
I’m setting up a DMP with Stepchange now and they have put me on the breathing space scheme which prevents creditors contacting you about making payments or from adding interest for 60 days. I was a bit sceptical about how quickly it would be applied but I had en email from Paypal credit confirming it before I’d even got off the phone to Stepchange, and my Barclaycard statement that was generated the next day had no interest on it.
Sara (Debt Camel) says
Good to hear!