Debt Management Plan
- We offer Individual Voluntary Arrangements (IVAs) through our licensed insolvency practitioner, who is regulated by the Insolvency Practitioners Association. While we provide information on various debt solutions, please note that we do not offer advice as we are not regulated by the Financial Conduct Authority.
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What Is a Debt Management Plan (DMP)?
A Debt Management Plan (DMP) is an arrangement between you and your creditors that allows you to pay off your debts through a single, manageable monthly payment. This payment amount is determined based on a thorough assessment of your monthly income and expenses, ensuring it remains affordable while reducing the total you owe.
DMPs can only include 'non-priority debts,' such as credit card debts, personal loans, and overdrafts. The payment you make is tailored to your financial situation, meaning it can be adjusted if your circumstances change.
As an informal agreement, a DMP can be terminated at any time by either you or your creditors. Many individuals choose to work with third-party debt management companies to negotiate the terms of the DMP on their behalf. While these companies may charge a fee, they can also help reduce direct contact from creditors, easing your financial stress.
Advantages and Disadvantages
Before choosing a Debt Management Plan, it’s essential to weigh various factors. Here are some pros and cons to consider:
Advantages
- You will only contribute an amount that fits your budget, which can be adjusted if your situation changes.
- A Debt Management company will handle communications with your creditors for you.
- You have the freedom to terminate the plan whenever you choose.
- All qualifying debts can be combined into a single monthly payment.
- Some creditors might agree to freeze interest rates and lower repayment amounts.
Disadvantages
- Your creditors can terminate the agreement at any time, and they are not required to accept the plan.
- A Debt Management Plan could adversely affect your credit report, potentially making it challenging to obtain credit while on the plan and for some time afterward.
- There may be extra fees associated with setting up a Debt Management Plan.
What Are My Payment Obligations?
The payments you make towards a Debt Management Plan are determined by your total debt and the DMP provider managing your plan. Generally, you'll pay an amount that addresses your eligible debts and any fees associated with the DMP service.
Before you proceed, ensure you thoroughly review the outlined costs from the company managing your case. It’s important to understand how your payments will be allocated. Below is a brief overview of what your payments may include:
Debt Settlements
The non-priority debts included in your DMP must receive approval from your creditors. However, you can begin making the proposed reduced payments immediately while they conduct their review.
Interest and Charges
Creditors are not required to agree to freeze interest and charges during your Debt Management Plan (DMP), meaning your total debt may still rise. Consequently, your monthly payments will also be allocated towards these accruing costs, potentially extending the time needed to pay off your debts.
Other Fees
The fees imposed by your Debt Management company are intended to cover their administrative expenses. These fees are capped at 50% of your total monthly payment, which can lead to your plan extending longer than required, as a smaller portion of your payment will be allocated towards settling your debts. It's important to be aware of these fees when entering a DMP, as they can significantly impact the time it takes to become debt-free.
Comparing Debt Management Plans with Other Solutions
DMP vs. Individual Voluntary Arrangement (IVA)
Both Debt Management Plans (DMPs) and Individual Voluntary Arrangements (IVAs) provide a way to consolidate debts into a single monthly payment, making it easier to manage financial obligations. However, there are significant differences between these two solutions that you should consider:
- With a Debt Management Plan (DMP), creditors are not required to freeze interest and charges, which means that the overall debt may continue to grow. In contrast, with an Individual Voluntary Arrangement (IVA), interest and charges are frozen once the arrangement is in place, providing greater certainty about the amount owed.
- An IVA is a formal, legally binding agreement between you and your creditors, which remains in effect once approved. On the other hand, a DMP is informal and can be terminated at any time by either you or your creditors, offering more flexibility but less protection.
omparing Debt Management Plans and Bankruptcy
There are major differences between the nature of these two options:
- A Debt Management Plan (DMP) is an informal arrangement, meaning creditors are not required to accept it. In contrast, bankruptcy is a formal court order where all your creditors assess your assets and liabilities to determine eligibility.
- While only unsecured debts can be included in a DMP, bankruptcy typically covers most types of debt. Additionally, bankruptcy generally lasts for 12 months, whereas the duration of a DMP depends on how long it takes to pay off the outstanding debts.
Is a Debt Management Plan Suitable for My Situation?
When selecting a debt solution, it's essential to make an informed choice tailored to your unique circumstances. Every individual's financial situation varies, so you'll need to find the option that best suits you personally.
While a Debt Management Plan (DMP) may not have a defined end date due to accruing interest from creditors and possible additional fees from the provider, it can still be a viable option if you're confident in your ability to maintain consistent monthly payments toward your debts.
Additionally, a DMP might appeal to you if you prefer an informal arrangement that you can cancel at any time. However, it's important to be prepared for the possibility that some creditors may decide to withdraw from the plan as well.
Steps to Apply for a Debt Management Plan
It's advisable to consult an FCA-regulated organization or a charitable agency for assistance.
Why Consider a Debt Management Plan?
Are you finding it hard to manage your debt?
Is a Debt Management Plan Right for You?
Life's circumstances can fluctuate, and your financial situation can change as well. If you find yourself unable to continue making the previously agreed payments, a Debt Management Plan (DMP) can provide you with professional guidance. This option allows you to reorganize and adjust your repayment plan to better align with your current financial position.
A Debt Management Plan (DMP) serves as a solution by restructuring your original payment plan, making it easier, more affordable, and less stressful. With the assistance of a professional DMP provider, you can begin repaying your debt at a pace and amount that suits your financial situation. While a DMP doesn’t expedite debt repayment or reduce costs, it alleviates pressure and allows you to focus on living your life—something that truly matters.
DMPs are available based on eligibility and acceptance, and alternative solutions may also be appropriate. Please note that fees may apply.
Money Advice provides information about Debt Management Plans but does not offer these plans or provide specific advice or recommendations, except for considering entering into an IVA.
Managing debt can be challenging, but we've simplified it into three straightforward steps.
1
Consult with a debt expert
Our knowledgeable and approachable team will guide you through the IVA process.
Discover your choices
We won’t rush you into a decision. Our aim is to help you determine if an IVA is the right fit for you.
2
Determine Your Debt Solution
Choose the option that best suits your needs and way of life.
3
FAQs
Some examples of ‘Priority’ debts that can’t be included in a Debt Management Plan (DMP) are:
Council Tax
Utility Bills
Mortgage or Rent Arrears
Court Fines
Child Support
National Insurance
TV Licence Arrears
Priority debts are those that must be prioritized when making repayments to your creditors. Failing to pay these debts can have serious consequences, including the possibility of imprisonment or substantial fines.
An IVA is a legal agreement, while a Debt Management Plan (DMP) is informal, though both require you to make monthly payments.
IVAs typically last five years, after which any remaining debt is written off. In contrast, with a DMP, you continue making payments until your outstanding debt is fully paid, which can vary from person to person.
You can read more if you’re considering an IVA or a Debt Management Plan.
It’s crucial to make an informed decision, as every situation is unique, and you’ll need to choose the path that feels right for you personally. A Debt Management Plan may be a suitable choice for you if the following circumstances apply:
You have £2,000 of eligible debt.
You would like a third party to handle your debts on your behalf and negotiate with your creditors, and you can afford to pay any necessary fees that these companies charge.
You can make monthly payments towards your creditors.
You can still afford to pay your bills and any debts that aren’t included in the Debt Management Plan.
You prefer an informal arrangement that you can cancel at any time.
RMS Financial assists over 3,000 individuals in the UK each year.
Our team of specialists helps thousands of families regain control of their finances through an IVA.
Is an IVA the right choice for you?
We can evaluate your eligibility for an IVA.
Would you rather discuss this later?
We are here to provide support in helping you find a solution.
