What is a Debt Management Plan (DMP)?
A DMP is an informal agreement between you and your creditors for paying back your non-priority debts. Non-priority debts are things like credit cards, loans and store cards.
You pay back the debt by one set monthly payment, which is divided between your creditors.
Most DMPs are managed by a DMP provider who deals with your creditors for you. This means you don’t need to deal with your creditors yourself.
A DMP is not legally binding, meaning you’re not tied in for a minimum period and can cancel it at any time.
Is a DMP right for you?
A DMP may be a good option if the following apply to you:
▪️you can afford the monthly repayments on your priority debts (such as mortgage, rent and council tax) and your living costs, but are struggling to keep up with your credit cards and loans
▪️you’d like someone to deal with your creditors for you
▪️making one set monthly payment will help you to budget.
However, you need to be sure you understand the impact a DMP will have:
▪️it may take longer to pay back your debt because you’ll be paying less each month
▪️your creditors won’t necessarily freeze the interest and charges on your debts, so the amount you owe might go down by less than you think
▪️your DMP provider might charge you a fee, although there are several free providers you can use so there’s no need to pay if you don’t want to
▪️your creditors might refuse to co-operate or continue to contact you
▪️the DMP may show on your credit record, making it harder for you to get credit in the future.
If you’re unsure about whether this sounds like it’s right for you, you might want to think about other options for dealing with your debts.
How to get a DMP
Step one: sort out your priority debts
A DMP will only cover your non-priority debts, such as credit cards, store cards and loans. Before you decide to get a DMP, you should make sure you can afford to pay your priority debts, which include things like your mortgage, rent and council tax. If you’re struggling to afford your priority debts, you may need to think about choosing another debt solution that’s more appropriate for your situation.
Step two: decide whether a DMP is right for you
Before you decide to get a DMP, think about what you want – to pay off all your debt quickly or is it more important to you to have a manageable monthly payment and have someone else to deal with your creditors for you? If it’s the first, you might want to think about choosing a different debt solution.
Step three: work out your budget
A DMP provider will normally help you work out your budget, but it’s a good idea to do this yourself first. This will mean you’ve got a good idea of how much money you’d have left over each month to pay into the DMP.
Step four: think about whether to pay for your DMP
Many DMP providers will charge fees, but there are some providers who will help you set up a DMP for free. It’s important to remember that you don’t need to pay for your DMP.
If you do choose to use a provider who charges a fee, make sure you find out how it will affect the length of your DMP, the amount of money that will go to your creditors and the amount that will go to the DMP provider.
Step five: choose a DMP provider
There are various ways to find a DMP provider, including:
▪️from your local Citizens Advice Bureau
▪️asking National Debtline for a referral
▪️doing an internet search for debt management companies or debt management plans
▪️in the Yellow Pages under debt adjustment and management
▪️if you’re already having debt advice or counselling, asking for a recommendation from your adviser
▪️if you have friends or family with a DMP, asking them for a recommendation.
Remember that just because a DMP provider has a flashy website or a big advertisement, this doesn’t necessarily mean they will offer the best service for you. Make sure you do your research into the company before you choose.
Do you need to pay for a DMP?
Many debt management plan (DMP) providers charge a fee for their services but some don’t. It’s important to remember that if you don’t want to pay a fee, you don’t have to. You just need to choose a free provider.
A DMP provider works on your behalf to work out what you can afford to pay, negotiate payments with creditors, and distribute the payments to your creditors each month. Clearly, any organisation or company providing a professional service like this will have costs it needs to cover.
Commercial DMP providers cover these costs by charging fees to their customers. Meanwhile, the free providers, who are normally charities, are paid directly by the banks and credit card companies themselves, meaning they don’t need to pass fees on to their customers.
Impact of a DMP on your credit rating
Your DMP may show up on your credit reference file. Some creditors may ask for a note to be put on your file to say that you have a DMP. This would reduce your chances of getting credit if you applied for it while on your DMP, as it would show you’ve had trouble keeping up with repayments. However, if you kept up with your DMP repayments, the DMP would look better on your credit reference file than unpaid debts or debts that you were only making infrequent payments towards.
The note may also stay on your file for a time after the DMP has ended, so you may struggle to get credit for some time afterwards.
If you miss payments on a credit debt, this is also recorded on your credit reference file. Even if you’re in a DMP, your creditors may still record that you’ve missed payments, as you’ll be paying less than you agreed to when you took out the original credit agreement. This will mean you could find it harder to get credit while you’re making reduced payments and for some time afterwards.
What if I'm struggling to make payments towards my DMP?
You may find you’re struggling to make the payments on your debt management plan (DMP). If this happens to you, it’s important you take action straight away. If you bury your head in the sand, you could make the problem worse.
If you’re in a DMP, it’s normally not a good idea to take on any more debt, such as an overdraft or credit card.
If you feel that you need to take on more debt, for example if you’ve had some unexpected costs such as urgent repairs to your home, talk to your DMP provider first. They may be able to re-negotiate your DMP payments which would leave you with more money to pay for your other costs.
If you’re struggling to make your payments or think you’re going to struggle, you need to contact your DMP provider immediately.
What if I miss a DMP payment?
If you’ve already missed a payment, you need to contact your DMP provider immediately. Missing a payment will mean your creditors don’t get the monthly payment they’re expecting, which may mean they decide to stop co-operating with your DMP.
Don’t bury your head in the sand, as this will only make the problem worse. Talking to your provider quickly is the only way to get the problem sorted out. They may be able to negotiate with your creditors to keep the DMP going.
Can you reduce your DMP payments?
The amount you pay into a DMP doesn’t have to be set in stone. If you’re struggling to make the payments each month, ask your provider whether it’s possible to reduce the monthly payments.
Bear in mind that if your payments are reduced, your debt may take even longer to pay off.
What if my creditor still contacts me?
If you’ve got a debt management plan (DMP), you may find your creditors are still contacting you or asking for payment, even though you’re making payments they’ve agreed to.
There are a number of reasons why creditors might still contact you if you’re in a DMP:
To send you regular account statements
Under the rules in the Consumer Credit Act 1974, your creditors will normally have to keep sending you annual statements as well as arrears and default notices in a set format. This happens even when you’re in a DMP. Don’t worry, as it doesn’t mean there is a problem with your DMP. However, if you receive other letters demanding payment or threatening court action, you’ll need to contact your DMP provider for advice.
You haven’t had your DMP for very long
Some creditors may chase you for payment if you haven’t yet made many payments on your DMP. You should tell your creditors that you’re paying into the DMP that they’ve agreed to and ask if they’ll stop sending you reminders.
They’re chasing you for debts not in your DMP
Remember that a DMP won’t pay off all your debts. Your priority debts, such as mortgage arrears or court fines, can’t go into a DMP. You need to make arrangements to pay these debts first and still need to deal with these creditors yourself.
The creditor has refused to deal with the DMP provider
Sometimes a creditor will refuse to deal with a DMP provider. This could be because the creditor doesn’t want to accept the reduced payments or sometimes it could be because they’ve objected to you using a fee-charging provider, which would mean there’s less money to pay the debts you have with them. If the creditor doesn’t want to deal with the DMP provider, they can still take action to recover the money you owe, which may include taking you to court.
If this applies to you, ask the creditor why they’re not willing to co-operate with the DMP. You can try to negotiate with them yourself to see if they’ll change their minds. However, they’re not legally obliged to do so, so you may need to keep dealing with this creditor separately.
The creditor has made a mistake
The creditor may simply have made a mistake or not fully updated their records. If you think this is the case, ask the creditor why they’re still contacting you, remind them that they’ve agreed to the DMP and ask them to update their records.
The creditor is harassing you
While a creditor is still allowed to contact you while you’re in a DMP, if one is doing any of the following, it may count as harassment:
▪️making demands for payment in a way that is deliberately meant to alarm, distress or humiliate you, your family or your household, such as turning up on your doorstep threatening to take goods if you don’t pay
▪️contacting you too often or late at night
▪️contacting you through Facebook, Twitter or other social networking sites
▪️pressurising you to sell property or take out more credit to pay your debt
▪️using more than one debt collection company at the same time or not telling you when your debt has been passed to another company
▪️producing any document which looks like it’s official when it isn’t, or making false claims that a document is official when it isn’t
▪️pressurising you to pay in full or in large instalments that you can’t afford
▪️making threatening gestures or statements
If you think the creditor shouldn’t be contacting you
While there are many valid reasons for a creditor to contact you while you’re in a DMP, if they’ve agreed to the DMP they should accept the fact that you’re making payments through it and keep contact to a minimum.
The first step you should take is to contact your DMP provider to explain what’s happening. They may be able to negotiate with the creditor to stop contacting you. If they’re unable to do this, you can try contacting the creditor yourself, explaining that you’re in a DMP and asking them to stop contacting you.
If you believe the creditor is harassing you, you may need help to talk to them.
Why has my debt has increased since the DMP?
It’s not uncommon to find that even after making several payments on your DMP, your overall debt has increased. The most common reason for this is that your creditors may still be charging you interest and late fees on your debt. If this happens, it will take longer to pay off your debts and your overall debt may increase if your monthly payment doesn’t cover the interest and charges.
Can you get the creditors to freeze the interest?
Your DMP provider will normally try to negotiate with your creditors to freeze any interest and other charges when they set up your DMP. They should tell you which creditors have agreed to this and which have not before you start your DMP.
If some of your creditors haven’t agreed, you can ask your provider to try negotiating with them again. You might also want to try contacting the creditor yourself to see if they’ll agree to freeze the interest and charges.
Can you cancel a DMP?
A DMP isn’t a legally binding agreement. This means that you can cancel it if you want to.
Before you cancel your DMP, you need to think carefully about what will happen next. Ask yourself these questions.
How are you going to deal with your debts now?
Before you cancel your DMP you should think about how you’re going to deal with your debts afterwards. When you cancel, the provider will tell your creditors, so they might start charging you interest and late payment fees again, as well as expecting you to resume higher payments. You’ll also have to deal with your creditors yourself again. Think about how you’re going to cope with this.
You should think about other debt solutions that would help you to deal with your debts before you go ahead and cancel your DMP.
Will you get a refund of any fees?
Whether or not you can get a refund of any fees or charges from your DMP will depend on what your agreement with the DMP provider says. Check the terms and conditions carefully to see if you can get a refund of some of your fees.
If you entered the DMP agreement over the phone or on the internet, then it is classed as a distance sale which gives you extra rights. You will have a cooling off period of 30 days. During this time, you can cancel your DMP for any reason and get a refund of any fees you’ve paid.
Will you have to pay a cancellation fee?
Your provider should have given you information about cancellation fees when you first entered your agreement. These fees should be reasonable.
Are you cancelling because you were misled?
DMP providers have to follow certain rules as a condition of being FCA authorised. These include not misleading you and making sure you have all the information you need to make an informed decision about starting a DMP. If you believe your provider misled you, perhaps by making claims that weren’t true or leaving out important information, you can make a complaint as well as cancelling your DMP.
Cancelling your DMP
To cancel your DMP, you need to contact your provider and ask to cancel. They will inform your creditors that the agreement has been cancelled, so you can expect to start dealing with them yourself again.
Can you switch DMP providers?
As DMPs aren’t legally binding in any way, you’re free to cancel at any time. So if you choose to switch provider you should be able to do this easily. However, usually you’ll need to cancel your old DMP and set up a brand new one with the new provider, although some providers will manage the whole process for you.
Some providers will want to explore your situation as a whole with you before they set up the DMP. This is to ensure that a DMP is still the best solution for you and to consider other options.
If you want to switch because you’re not happy with your provider, it’s worth speaking to them first to see if the problems you have can be resolved. DMP providers have to deal with complaints promptly and fairly, so this may be the easiest route to sort out your problems and would save you the bother of setting up a new plan.
How to switch DMP providers
If you want to change to a new DMP provider, follow these steps:
Step one: check what your existing agreement says about cancelling
Make sure you understand what your existing agreement says about cancelling and whether you’ll get a refund of any of the fees you’ve paid. You may have to give a certain amount of notice, such as one month.
Step two: ask your current DMP provider for information about your finances
Ask your existing DMP provider for details of all the accounts that are in your DMP, including the amounts you owe and the reference numbers.
Step three: cancel the old DMP
Contact your existing provider to let them know you want to cancel and giving them the amount of notice they require. It’s a good idea to do this in writing and over the telephone.
Remember, you might want to make payments directly to your creditors after this, just to make sure there’s no gap in your payments.
Step four: choose a new DMP provider
It’s a good idea to choose who you want to be your new provider before you cancel the old one. This should mean that you’ll be able to set up your new DMP more quickly. Remember to think carefully and do your research before choosing a new provider, to make sure you choose the right company for you.
It’s a good idea to contact the new provider to find out how quickly they can set up your new DMP and to check what information they’ll need.
Step five: set up the new DMP
Make arrangements with your new provider to get your new DMP set up as quickly as possible.
What if my DMP provider has closed?
Debt management plan providers sometimes go bust or have their licence taken away by the Financial Conduct Authority. If this happens to your provider, this won’t cancel your debts, so you’ll need to:
▪️make a new plan for paying off your debts
▪️try to get back any money the provider owes you
You can also contact your nearest Citizens Advice to get more detailed help.
Making a new plan for your debts
First, cancel any direct debit or standing orders to your debt management plan provider. These might have been cancelled automatically, but it’s worth checking. Your provider will have stopped making payments to your creditors. Contact everyone you owe money to and tell them your debt management plan provider has closed. Ask them for some time to sort out your finances – many creditors will give you at least a month without having to pay them anything.
Next you need to check your options for dealing with your remaining debts. You might want to find a new debt management plan or handle your debts yourself. This could be a good time to get advice on what to do next – contact your nearest Citizens Advice if you’re looking for help with this.
Don’t accept straight away if a provider contacts you directly
Your old provider might have given your details to another provider that wants to gain your business. You don’t have to sign up with them, and they are likely to charge you fees if you accept their offer.
If you want to choose another debt management plan provider you might be better off finding one that won’t charge you fees.
Contact your nearest Citizens Advice if you’re not sure about an agreement you’ve been offered.
Getting back money your provider owes you
Unfortunately, if your provider has been holding some of your money, you might not be able to get it all back.
If your provider is bankrupt, outside managers called administrators will handle its money while it closes down. You need to make sure the administrators know that the provider owes you money. Even if they can’t pay you back completely you might get part of what you’re owed.
Your provider might have the details of its administrators on its website. If you can’t find them, call the Financial Conduct Authority’s consumer helpline on 0800 111 6768. They can tell you who the administrators are.