Debt Management Plan (DMP)
A Debt Management Plan (DMP) is an informal arrangement between you and your creditors which allows you to repay your debts, normally in full, at a rate that you can afford without relying on further borrowing. If during your DMP you are able to offer creditors a lump sum to settle your debts, it is possible to agree a reduced amount in full and final settlement. A DMP can be set up for free, however most private firms charge a fee. A DMP is different from a payment arrangement in that you will pay one payment to the debt management company who will then make the payments for you. This is not a service that One Manchester can provide but we are happy to talk you through it and help you find someone that can help.
Am I eligible for a DMP?
If you have a very low disposable income but can still afford to pay something off your debts then this is a solution that might suit you.
Advantages
- If creditors freeze interest and charges, a DMP can help you clear your debts in a reasonable period of time
- If you’re struggling to meet your normal payments to creditors, a DMP allows you to pay an affordable monthly amount
- A DMP is flexible meaning you can stop your plan at any time but might have to give notice
- Creditors will usually stop further action to collect your debt
- Whoever you use to do a DMP will work closely with the creditors to explain your situation which means you do not have to make contact with your creditors
- You will make one payment rather than individual payments to your creditors
Disadvantages
- A DMP is an informal debt solution and creditors do not have to freeze interest and charges. Some creditors may agree to reduce interest charges rather than freeze them. Continued charges could result in it taking longer and costing you more to repay your debts.
- Certain debts such as arrears of Council Tax cannot be included.
- A DMP will have a negative impact on your credit file. Creditors can issue what’s called a default notice which means you have broken your agreement to pay what you owe. This will stay on your credit file for six years and will affect your ability to obtain credit.
- If you cancel your DMP, creditors could end the payment arrangement that was agreed and charges could be added to your debts. This could include charges that had been stopped up until that point.
Which debts can be included in a DMP?
You can include non-priority debts:
- Bank loans
- Store cards and catalogues
- Overdrafts
- Credit cards
- Student loans
- Water charges
- Benefit overpayments
- Which debts cannot be included in a DMP?
You cannot include priority debts:
- Mortgage or rent arrears
- Gas and electricity arrears
- Council Tax or rates arrears
- Magistrates’ court fines
- Arrears of maintenance payable to an ex-partner or children
- Income Tax or VAT arrears
- TV licence or TV licence arrears
- Secured debt
Who offers DMPs?
Many DMP providers will charge fees, however there are some providers who will help set up a DMP for free so it’s worth searching around. We can help you with this.
Things to consider
A DMP that lasts longer than 10 years is not likely to be the best solution as there might be others available that are better for you.
DMP procedure
- You will be asked to provide proof of income and expenditure and details of all your debts. This will be used to work out how much you can offer to pay each creditor.
- The adviser will speak to your creditors on your behalf to set up the Debt Management Plan.
- If accepted, you will start making your monthly repayments to the company who will then make the payments on your behalf to your creditors.
For help with debt, speak to our friendly One Money team of specialist advisers on 0330 355 1000 or email onemoney@onemanchester.co.uk