If you’re finding it difficult to keep up with your regular debt payments, whether on a credit card or store card, it may be worth considering a Debt Management Plan (DMP). A DMP is an informal arrangement that helps you consolidate your debt, allowing you to make one monthly payment instead of several. This can make the process of paying off your debt easier to manage.

What is a DMP and how does it work?

With a DMP, you pay creditors back at a rate you can afford one month at a time. This monthly payment will be based on your budget and is calculated by taking your monthly incomings and outgoings into account. 

After the reduced monthly rate has been calculated, it will be proposed to each of your creditors and if they accept it, you can make monthly debt repayments over an extended period of time. With a DMP, you only pay what you can afford so if your circumstances change then the monthly payment amount may be altered to reflect this.

As a DMP is an informal agreement, it isn’t legally binding. This means there is no minimum period you’re tied in with it and you or your creditors are free to cancel at any time. 

To start the process of getting a DMP, you first need to sort your priority debt and see if you have enough income to make a monthly payment. If you do, you can get in touch with a DMP provider who will work with you and deal with your creditors on your behalf.

What debt can be included in a DMP?

Typically, you can’t use a DMP to pay off priority debts. This kind of debt needs to be prioritised because the consequences of not paying it off can be serious. For example, your energy supply could be cut off or you could lose your home. Priority debts can include:

• Mortgage
• Rent
• Council tax
• Income tax
• Court fines
• National insurance
• TV licence
• Utility bills arrears from a previous provider (except for water bills when paid direct to the utility company, not to a landlord)
• Priority bill arrears if not with current provider.

Before you enter into a DMP, you will need to ensure that your priority debts are under control. For advice on dealing with priority debt, feel free to contact us. 

A Debt Management Plan can incorporate any non-priority debts. Although less urgent than priority debts, it is important to keep up with your payments to avoid your creditors taking action against you, which is where a DMP can help you out. Non-priority debts can include:

• Credit cards
• Overdrafts
• Store cards
• Payday loans
• Bank loans
• Buy now, pay later
• Water bills (when paid direct to the water company, not through a landlord)
• Benefits overpayments (as long as it’s not a result of fraud).

If you have taken out a credit agreement with someone else, you will have what is known as joint debt. This can still be included in a DMP but your creditors may still chase the other person for all of the debt because you are both liable for the full amount. You can, however, set up a joint DMP where you are both equally responsible for the repayment plan, no matter your individual levels of income or debt.

What’s the difference between a DMP and an IVA?

Another solution for those looking to manage their debt is an Individual Voluntary Agreement (IVA). While an IVA is also a mutually agreed strategy where you can make smaller, more affordable payments to your creditors, there are some differences between IVAs and DMPs.

One of the most notable differences is that IVAs are legally binding so that once your creditors have agreed to the plan, they can no longer take action against you. An IVA is also agreed over a set period of time (usually five to six years), after which any remaining debt is written off. Both DMPs and IVAs have their pros and cons so it’s worth researching both to see which is best for you.

Is a DMP right for me?

As with any debt solution, it’s important to make an informed decision and go with the option that is most suited to you and your needs. 

If you are regularly getting into arrears or have become reliant on your overdraft or credit card, it  may be worth checking if you are eligible for a DMP. With reduced monthly payments, it can be a good way to make your debt easier to manage.

Our advisors will be able to offer you support and information about all the debt solutions available and the eligibility criteria for each. You can also check to see which debt solution you may be eligible for by entering your details in our online form.