Debt Management Plans (DMPs)

A debt management plan is set up by a debt adviser after a full review of your income, outgoings, and debts. The process works as follows:

1. Financial assessment: Your debt adviser calculates your disposable income — what you have left after essential living costs (rent or mortgage, food, utilities, council tax, essential transport). This becomes your monthly DMP payment.
2. Creditor negotiation: Your adviser contacts each of your unsecured creditors to propose the DMP, asking them to freeze or reduce interest and charges and agree to accept reduced monthly payments. Most mainstream creditors (banks, credit card companies) cooperate with DMPs arranged through recognised free providers.
3. Single monthly payment: Instead of paying each creditor separately, you make one payment to your DMP provider each month. The provider distributes the money among your creditors on a pro-rata basis.
4. Ongoing management: Your DMP provider reviews your plan periodically (usually annually) and when your circumstances change. If your income increases, your payment may increase. If it falls, your payment can be reduced.

A DMP typically lasts several years — sometimes a decade or more for large debt balances. There is no legal limit. The key is that you make regular, affordable payments until each debt is cleared, rather than making minimum payments on high-interest debts indefinitely.

During the DMP, your credit cards and other accounts covered by the plan are usually frozen or closed by the creditors. You should not take on new credit while on a DMP.

This is the single most important decision when considering a DMP: always use a free provider.

Free DMP providers

• StepChange Debt Charity (0800 138 1111 / stepchange.org) — the UK's largest free debt charity, running the majority of DMPs in the UK
• PayPlan (0800 280 2816 / payplan.com) — free DMP service funded by creditor contributions
• Citizens Advice — can refer you to the above or provide face-to-face DMP advice
• National Debtline (0808 808 4000 / nationaldebtline.org) — provides advice and self-managed DMP tools

Free providers are funded by creditors (who pay a levy from DMP payments) or by charitable donations. Every penny of your monthly payment goes to your debts.

Fee-charging commercial providers

There are commercial 'debt management companies' that charge fees — often £50–£100 per month upfront before any money reaches your creditors. Over the life of a DMP, this can amount to thousands of pounds taken away from your debt repayment. The Financial Conduct Authority (FCA) regulates fee-charging DMP providers, but authorisation does not mean their services represent good value.

There is no advantage to using a fee-charging provider over a free one. StepChange and PayPlan handle exactly the same negotiations with the same major creditors. If you have been approached by a commercial provider, or are already on a fee-charging DMP, contact StepChange to discuss switching.

A DMP will affect your credit file and relationships with creditors. It is important to understand what happens:

Credit file

When you enter a DMP, creditors typically register a default or an arrangement to pay marker on your credit file. A default stays on your file for six years from the date it was registered. During this time you will find it difficult (or impossible) to obtain mainstream credit, including mortgages, car finance, and credit cards.

Once the six years have passed, the default is removed from your file — whether or not the debt has been fully repaid. Your credit score begins to recover from this point.

Creditor cooperation

Because a DMP is informal, creditors are not legally required to freeze interest or accept reduced payments. In practice:

• Most major banks, credit card companies, and mainstream lenders cooperate with DMPs arranged by recognised free providers.
• Some creditors (particularly payday lenders and some debt purchasers) may refuse to freeze interest or may sell your debt to a third party.
• A creditor who refuses to cooperate can still take legal action — obtaining a County Court Judgment (CCJ) — even while you are on a DMP.

Your DMP provider will tell you which creditors have agreed to the terms. If a creditor does not cooperate, your adviser can help you decide whether a different debt solution would be more appropriate for that particular debt.

A DMP is not the right solution in every situation. Here is when it tends to work well — and when a different option may be better:

A DMP may be right if:

• Your debts are primarily unsecured (credit cards, personal loans, overdrafts)
• You have enough disposable income to make a meaningful monthly payment (even a small one)
• You want to repay your debts in full over time rather than write them off
• You want to avoid the legal consequences of bankruptcy or an IVA (including restrictions on running a company)
• Your total debt is manageable over a realistic timeframe (for example, 5–10 years)

A DMP may not be right if:

• You have significant priority debts (rent arrears, council tax, HMRC) — these need to be addressed separately before unsecured debts
• Your disposable income is very low or zero — an IVA (for larger debts) or a Debt Relief Order (for smaller debts under £30,000 with minimal assets) may be more appropriate
• The total debt is so large that repayment within a reasonable period is unrealistic even with frozen interest
• You need legal protection from creditor action — a DMP provides no statutory stay on proceedings, unlike an IVA or Breathing Space

The right debt solution depends entirely on your individual circumstances. Always get a full debt assessment from a free, regulated adviser before deciding. StepChange's free online debt advice tool (Debt Remedy) can give you a personalised recommendation in around 20 minutes.