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What is a DMP?

Debt management plans: your questions answered

If you’re considering a debt management plan (DMP), you probably have questions about how a DMP might work for you.

By understanding how long a DMP lasts, how much you need to pay, and how it affects other aspect of your life, you can feel more confident about whether it’s the right debt solution for your situation.

How long does a DMP last?

The duration of your DMP depends on:

  • How much debt you owe
  • How much you can afford to pay to your debts each month

The more debt you have, and the less you can afford to pay each month, the longer the term of your DMP. However, DMPs are flexible. Should you have an increase in income, or a reduction in spending, you may be able to increase your monthly payment, which would usually reduce the length of your DMP.

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How is a monthly DMP payment worked out?

Only by taking a look at your budget can a DMP provider work out how much you can pay towards your debts each month. Your priority household bills and living expenses are most important, and it’s the money left over after paying these costs that goes into your monthly DMP payment.

Debt advice charities don’t charge a fee for setting up and overseeing your DMP. However, there are some fee-charging companies that will add a fee to your monthly payment.

The monthly DMP payment must leave you with enough money to cover your living costs and a reasonable quality of life for you and your family.

Is a DMP like a consolidation loan?

No. A DMP is a payment arrangement that’s based on the amount of money left over after your household bills and living expenses are covered.

A consolidation loan is a form of credit that you take out in order to pay off the debt you already have.

Is a DMP legally binding?

No. You can stop your DMP at any time, and you don’t have to make a legal commitment when starting a DMP.

You usually need to sign a DMP agreement form. This gives the DMP provider permission to contact your creditors on your behalf. However, the agreement’s not legally binding.

Will a DMP affect my credit rating?

Each debt that’s been included in your DMP can have a ‘payment arrangement’ note added to it. This is sometimes known as a ‘DMP flag’. A creditor can only add a DMP flag to your debt if they accept how much you’re paying them each month through the DMP.

There isn’t a specific place in your credit report that notes whether or not you’re on a DMP.

However, creditors will often default on account once you're been on a DMP for a few months. The default will stay on your credit file for six years.

Your DMP payments are usually lower than the minimum monthly amount. This will affect your credit rating, as you’re unable to cover the minimum payment that was set out in your credit agreement.

Can my creditors keep charging fees or adding interest during a DMP?

DMP providers cannot guarantee that creditors will freeze interest and charges during your DMP. In practice however, most creditors understand that when you’re in financial difficulties, adding further interest or charges will only make things worse.

If your circumstances don’t improve, it’s likely your creditors will end the original credit agreement, and at that point, will consider stopping further interest and charges.

I’m not in debt. I just want to make one payment to my debts each month.

If you’re not in ‘unmanageable’ debt at the moment, but have several monthly debt payments you’re struggling with, you can still look into whether a DMP is a good idea for you.

Problems such as an overdraft you find difficult to pay off , arrears on household bills, or having to rely on a payday loan could be warning signs of a potential debt problem in future.

If you’re comfortably managing your payments, a DMP may not be the best course of action for you. DMPs can sometimes show up on your credit file as a ‘payment arrangement’. This can suggest to creditors that you’re struggling with debt when you’re not. This can cause problems for you if you try to apply for credit in the future.

If your bills and debt repayments are scattered throughout the month, you might find it easier to bring the payment dates closer together (to the first week of the month, for example). This could make it easier for you to plan your finances for the rest of the month.

Speak to your creditors and ask if it’s possible to move the payment dates on your debts. It’s important to check that doing this won’t affect your credit rating.

Why do I need to review my DMP payment every year?

We believe it’s essential to review your situation regularly to make sure you’re getting the best support possible.

This is also a regulation. The Financial Conduct Authority (FCA) has ruled that all DMP providers must conduct a plan review with their clients at least once a year. This is to make sure a DMP is still the best option for you, and the payment you’re making each month is still a realistic reflection of what you can afford.

Can I skip a DMP payment to pay for Christmas?

Typically, a DMP provider won’t be able to pause your DMP payments to allow money for Christmas, birthdays or other events. These costs are usually listed as ‘sundries and emergencies’ in your budget, so it may be possible to put money aside throughout the year for these annual or seasonal expenses.

There are also sections for 'gifts' and 'savings' in the budget we put together with you, and these could help you to save money for Christmas and these other events.

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If I miss a DMP payment, will it get cancelled?

Unexpected circumstances may mean you’re unable to make your next DMP payment. Your provider may ask to review your budget to see if a different solution may suit you better. Also, the term of your DMP is likely to be extended to accommodate the missed payment.

It’s important to be aware that if you miss payments frequently, your DMP may be cancelled.

Any conditions that you have to stick to during your DMP will be clearly stated in your DMP agreement.

Can my DMP financially affect my partner or other people living with me?

Your DMP won’t affect the people you live with unless you have joint financial products or joint debts with them. This could be something like a loan, a bank account or household bills that are in both names.

Could a creditor make me bankrupt even though I'm on a DMP?

A creditor is only legally allowed to make you bankrupt you owe them more than £5,000 in England, Wales or Northern Ireland, or£3,000 in Scotland. Even then it’s very rare that they do this. The creditor would also have to pay expensive fees to make you bankrupt, which is usually not worth the risk when the creditor can’t predict the amount of money they would get back.

To start the bankruptcy process, the creditor must send you a formal demand for the money. If you receive something like this, call your DMP provider as soon as possible, and they’ll advise you what to do next.

DMPs with StepChange Debt Charity

Debt management plans are not suitable for all circumstances. If you're considering a DMP, get free, impartial debt advice first and we'll recommend the best solution for your situation.