What Is a Debt Management Plan?
A Debt Management Plan (DMP) is an informal arrangement between you and your unsecured creditors. A debt charity or company negotiates with your creditors on your behalf to accept reduced monthly payments based on what you can genuinely afford after paying your essential living costs.
DMPs are not legally binding agreements, which means creditors can technically opt out at any time — but in practice, most creditors cooperate, especially through established free providers like StepChange. There is no court involvement, no public record, and you keep your assets.
How a DMP Works — Step by Step
- Income and expenditure assessment: Your DMP provider calculates your income, subtracts reasonable essential living costs, and identifies your "disposable income" available for debt repayment.
- Creditor negotiation: The provider contacts all your creditors, proposes the reduced payment plan, and requests that they freeze interest and charges.
- Single monthly payment: You make one monthly payment to your DMP provider, which is then distributed to your creditors in proportion to what you owe each one.
- Regular reviews: Your plan is reviewed periodically. If your income rises, payments may increase. If circumstances worsen, the plan can be adjusted.
- Completion: When all included debts are fully repaid, your DMP ends. There is no write-off — you repay everything, just over a longer timeframe.
Free DMP Providers — Always Use These
There are fee-charging DMP companies in the UK that take a percentage of your monthly payment as their fee. There is no benefit to using them over free services. Fee-charging providers mean less money goes to your creditors, increasing the duration of your plan significantly.
The following organisations provide free DMP services:
- StepChange Debt Charity — the UK's largest debt charity, handles the most DMPs, excellent creditor relationships, available online and by phone
- National Debtline — free advice and self-managed DMP support, excellent resources
- Citizens Advice — free debt advice and DMP support through local offices and online
- Payplan — free DMP service, funded by creditor contributions rather than client fees
Pros and Cons of a DMP
Advantages
- Flexible — can be adjusted if circumstances change
- No court involvement
- Not recorded on public insolvency register
- Keep your home, car, and other assets
- One manageable monthly payment
- Interest is usually frozen
- Can be stopped at any time
- No minimum debt level
Disadvantages
- Affects credit score for 6 years
- Interest freeze not guaranteed
- Can take many years (5–10+)
- Not legally binding — creditors can opt out
- No debt is written off
- May need to close credit cards
- Creditors can still contact you
Debts Included in a DMP
Non-Priority Debts (Can Be Included)
- Credit cards and store cards
- Personal loans and bank loans
- Overdrafts
- Catalogue debts
- Payday loans
- Buy Now Pay Later debts (e.g. Klarna, Laybuy)
- Money owed to family or friends (if agreed)
Priority Debts (Cannot Be Included — Pay These First)
Priority debts have more serious consequences if left unpaid (loss of home, disconnection, imprisonment). These must always be paid before non-priority debts:
- Mortgage or rent arrears
- Council tax arrears
- Gas and electricity bills
- Income tax, VAT, and National Insurance owed to HMRC
- TV licence fines and magistrates' court fines
- Child maintenance
- Student loans (repaid through payroll via HMRC)
DMP vs IVA vs Bankruptcy — Comparison
| Factor | DMP | IVA | Bankruptcy |
|---|---|---|---|
| Legally binding | No | Yes | Yes |
| Debt written off | No | Yes (at end) | Yes (on discharge) |
| Public record | No | Yes | Yes |
| Assets protected | Yes | Mostly | No |
| Typical duration | 5–10 years | 5–6 years | 12 months + 3 yr IPA |
| Credit impact | 6 years | 6 years | 6 years |
| Minimum debt | None | £6,000–£10,000 | None |
| Fees | Free (via charity) | £3,000–£5,000 (built in) | £680 application |
| Interest frozen | Usually | Yes | Yes |
Debt Repayment Strategy: Snowball vs Avalanche vs DMP
Snowball Method
Pay the minimum on all debts and put all extra money towards the smallest debt first. When it is cleared, roll that payment onto the next smallest. Provides quick psychological wins but costs more in interest over time.
Avalanche Method
Pay the minimum on all debts and put all extra money towards the debt with the highest interest rate first. Mathematically optimal — saves the most money — but can feel slow if the highest-rate debt is also the largest.
DMP
Best when you cannot meet minimum payments across all debts. A DMP consolidates all payments into one and negotiates with creditors for a reduced rate. It is not a repayment strategy for those who are coping — it is a structured solution for those who are struggling.
How Long Will My DMP Take?
The duration of a DMP depends entirely on two factors: your total debt and your monthly disposable income. The typical DMP in the UK lasts 5–8 years for debts in the £10,000–£30,000 range.
Key factors that affect duration:
- Whether interest is frozen: If creditors freeze interest, every penny you pay reduces the balance. If interest continues, your debt may not reduce at all.
- Changes in income: A salary increase can allow you to increase payments and end the plan sooner.
- Windfalls: If you receive an inheritance or lump sum, you may be able to make a full and final settlement offer.
- Number of creditors: More creditors means more negotiations, but the distribution is handled by your provider.
What Happens If You Miss a DMP Payment?
Contact your DMP provider immediately if you cannot make a payment. Do not ignore it. Because a DMP is informal, a single missed payment will not automatically end the arrangement. Your provider can:
- Temporarily reduce your payment
- Request a payment holiday from creditors
- Review your income and expenditure and revise the plan
However, if you miss multiple payments without communication, creditors may withdraw from the arrangement, begin adding interest again, or take legal action. Communication with your provider is essential.