How does it work?

A Debt Management Plan (“DMP”) is an agreement, negotiated by you or a third party, to lower your monthly payments to your creditors.

It isn’t legally binding, unlike other debt solutions, such as an Individual Voluntary Arrangement (IVA) or a Trust Deed (Scotland only). With a DMP, your monthly payments are proposed based on what you can reasonably afford.

This is worked out through a breakdown of your monthly budget and the payments are usually paid over a longer period until your debts are paid in full.

Payments can also be revised if your circumstances change, making a DMP a flexible solution.

Unlike some debt solutions, a DMP sees you repay your debt in full. Your creditors may also agree to freeze interest and fees on the debts included, but this is not guaranteed.

If you opt to go for a private debt management company, they will charge you a fee for negotiating and administering your DMP.

However, there are some debt charities that offer the service for free.

If your creditors agree to the reduced payments offered, all you need to do is keep up with your payments.

ForestKing do not offer Debt Management Solutions and this information is provided for reference only.

Is it right for me?

There’s no maximum or minimum debt level needed to enter a DMP, but there are some things to consider before applying.

A DMP is good for those who are struggling to keep up with their debt repayments, but who can afford to consistently pay smaller amounts over a longer period of time.

It’s also good for those whose circumstances are likely to improve over time and who have a steady and relatively stable income.

Before applying for a DMP, you should be sure that you will still be able to pay your priority bills, such as your mortgage/rent and council tax.

What debts can I include?

Not all debts can be included in a DMP; it’s designed to help with non-priority debts. Debts suitable for this solution include:

• Personal loans
• Credit card debt
• Overdrafts
• Bank/building society loans
• Payday loans
• Store cards/credit
• Money borrowed from friends/family

What debts can I not include?

Debts that are unsuitable for a DMP include:

• Council tax
• Income tax
• Court fines
• National Insurance
• Hire purchase contracts for essential items
• Child support or maintenance
• TV licence
• Utility bills

Advantages

• As it is an informal solution, your DMP won’t be recorded on an insolvency register.
• A DMP shows you are willing to pay your debt in full, so your creditors will look at this more favourably.
• Creditors can freeze interest and charges on your debts.
• For the most part, DMPs are flexible – allowing changes to be made if your situation changes.
• They reduce your monthly payments to your debts.
• You can have less contact with your creditors if you opt to use a third party as they will deal with them on your behalf.

Disadvantages

• It can take you a long time to pay back your debt.
• It’s not guaranteed that your creditors will freeze interest and charges.
• You are still liable for your full debt level.
• It isn’t guaranteed that your creditors will accept the offer of reduced payments.
• Creditors can still take legal action against you.
• Your creditors are not obligated to stop contacting you, unlike other debt solutions like IVAs or Trust Deeds.
• Some private DMP providers will charge fees for the service, which can extend the length of the plan.
• Your credit score could be negatively impacted, making getting further credit more difficult and expensive.