How a debt management plan works

What is a debt management plan?

A debt management plan (DMP) is an informal agreement between you and your creditors to repay all your unsecured debts through one regular payment, usually run by a debt management company that shares the money out (opens in a new tab) between them. It is one of the debt solutions in England and Wales, and GOV.UK says plans are usually used when you can only afford a small amount each month, or when you will be able to make repayments again in a few months.

A plan only covers unsecured debts, such as credit cards, loans and overdrafts. Debts guaranteed against your property sit outside it. The plan can be cancelled if you do not keep up the payments.

NTF Financial Solutions is not authorised by the Financial Conduct Authority and cannot advise on, arrange or manage a debt management plan, start Breathing Space or act on a debt relief order. Arranging or running a plan for someone is a regulated activity, so this page explains how plans work and where to find a free one.

Are debt management plans worth it?

A debt management plan can be worth it if you can repay your debts in full at a lower monthly amount, but creditors do not have to agree, interest may continue and it lasts until the debts are cleared. It costs little or nothing and involves no court or public register. Its weakness is that it binds nobody: GOV.UK warns (opens in a new tab) that, unless the agreement says otherwise, creditors can still ask for the full debt later or take action to recover their money even while you keep up the payments.

Interest is a matter for each creditor. The FCA expects lenders to treat customers in arrears with forbearance, and its examples include (opens in a new tab) suspending, reducing, waiving or cancelling further interest or charges, but it does not require a creditor to freeze interest for the length of a plan.

Where can I get a free debt management plan?

You can get a free debt management plan by arranging it with your creditors yourself, which GOV.UK says you can do (opens in a new tab), or with help from one of the free debt advice organisations GOV.UK lists. Companies that charge usually take a set-up fee and a handling fee each time you pay, so make sure you understand the costs before you agree.

If you use a company, GOV.UK says it must be authorised by the Financial Conduct Authority, and you can check that on the FCA's Financial Services Register before you share any details.

Is an IVA better than a debt management plan?

Neither an IVA nor a debt management plan is better for everyone: an IVA is legally binding on your creditors and can be for part of what you owe, but it carries fees, usually lasts 5 or 6 years and goes on the Individual Insolvency Register, while a plan is informal, repays your debts in full and can cost nothing. Our comparison of an IVA and a debt management plan sets the two side by side.

GOV.UK's IVA key facts (opens in a new tab) say an IVA may not be the best solution if you have very low levels of debt, can only afford a small payment each month, or your income is mainly benefits. James Kaye and Nick Morgan, our licensed insolvency practitioners, can advise on whether an IVA would work for you; fees apply to an IVA.

What are the disadvantages of a debt management plan?

A debt management plan is not legally binding: creditors do not have to agree to it (opens in a new tab) and, unless the agreement says otherwise, can still ask for the full debt later or take action. Some companies charge set-up and handling fees, and because you repay all of your debts it can take many years.

Creditors do not have to freeze interest either. The FCA lists suspending or waiving interest and charges only as an example of forbearance (opens in a new tab) a lender may offer, so ask each creditor and get its answer in writing.

Can I set up a debt management plan myself?

You can arrange a plan with your creditors yourself, or through an FCA-authorised debt management company; MoneyHelper lists where to get free debt advice. GOV.UK confirms (opens in a new tab) both routes, and a company charges a fee for running the plan.

Doing it yourself means writing to each creditor with an offer based on what you can afford, and keeping up the payments. We cannot arrange or run a plan for you.