Debt Management Plan (DMP)

Although a Debt Management Plan (DMP) is designed to reduce your monthly repayments it does not require your creditors to write off part of what you owe.  It will take longer to clear your debts using a DMP.

Those offering DMPs will contact some, or all, of your creditors to offer a reduced monthly repayment.  Typically, you will be asked to make a single monthly payment to the broker who will, after deducting his fee, make a series of payments to your creditors in proportion to the amount they are owed.  Some brokers will receive a collection fee from your creditors as well. These charges may be added to the amount you owe your creditors.

A DMP can be an effective short-term solution to your cashflow problems.  However, cancelling or exiting a plan may be costly and in certain cases can result in you owing more than when you started.  The amount you owe will go up if your monthly instalments are reduced below the amount of interest your creditors charge.

DMPs are not regulated by the Financial Services Authority (FSA), although this is likely to change, and careful consideration must be given to the terms and your commitment to any DMP.

Advantages

• At least in the short-term, your regular payments under a DMP should be less than the amount you was previously paying.
• An insolvency process is not required.

Disadvantages

• It will take longer to settle your debts.
• A DMP has no time limit unless specified, unlike an Individual Voluntary Arrangement (IVA).
• The amount you owe may increase. 
• Unlike an agreed IVA, where your creditors are legally bound by your proposal, a DMP will not normally require your creditors to accept a reduction in what you owe.
   

Best suited to…

Those who have short-term cash-flow problems where their debt is relatively low.  Also, those who are confident of an increase in their future earnings and who do not own a property or have other means to raise money.

Use our Self-Assessment Debt Test for an immediate indication of whether a DMP may be right for you.