A Debt Management Plan (DMP) is an informal agreement where you make affordable monthly payments to your creditors. It’s not legally binding like an IVA, and it doesn’t write off any debt. But creditors often agree to freeze interest and charges, and you get a single manageable payment instead of juggling multiple debts.
DMPs work well if you can afford to repay your debts in full over time but need smaller monthly payments. They’re less suitable if you have large debts (£6,000+) because they can take 10+ years to complete — in that case, an IVA might be better.
What Is a DMP?#
A DMP is an informal arrangement between you and your creditors to repay your unsecured debts over an extended period.
You make a single monthly payment to a DMP provider (usually a debt charity or debt management company). The provider then distributes that money among your creditors in proportion to how much you owe each one.
Unlike an IVA, a DMP isn’t legally binding. This means:
- Creditors don’t have to accept it
- They can still take legal action against you
- They can withdraw from the DMP at any time
- You can pause or cancel the DMP if your circumstances change
DMPs are flexible, which is an advantage if your income varies or if you need to adjust payments. But the lack of legal protection means creditors aren’t forced to cooperate.
How Does a DMP Work?#
You start by contacting a DMP provider. This could be a free debt charity like StepChange, Christians Against Poverty, or National Debtline. Or it could be a commercial debt management company (which charges fees).
The provider will:
- Assess your income and expenses
- Work out how much you can afford to pay each month
- Contact your creditors to propose the DMP
- Distribute your monthly payment among your creditors
Your creditors will decide whether to accept the proposal. Most do, because they’d rather receive regular (albeit smaller) payments than risk you defaulting entirely.
If creditors agree, they usually freeze interest and charges. This means your debt stops growing, and all your payments go toward reducing the balance.
You make one monthly payment to the DMP provider. They handle all communication with your creditors from that point forward.
What Debts Can Be Included in a DMP?#
DMPs cover unsecured debts only. These include:
- Credit cards
- Store cards
- Personal loans
- Overdrafts
- Payday loans
- Catalogue debts
- Mobile phone debts
- Money owed to friends or family
- Debts sold to debt collectors like Lowell or Cabot
You can’t include secured debts (like mortgages or car finance), priority debts (like council tax, rent, or court fines), or student loans.
Priority debts must be paid first, before you work out what’s left for your DMP. If you fall behind on priority debts, you could lose your home or face bailiff action.
How Long Does a DMP Last?#
DMPs last as long as it takes to repay your debts in full. There’s no fixed term.
If you owe £10,000 and can afford to pay £100 per month, the DMP will last 100 months (just over 8 years) — assuming creditors freeze interest.
If creditors don’t freeze interest, the DMP will last even longer because part of your payment goes toward interest instead of reducing the debt.
This is why DMPs aren’t suitable for large debts. If you owe £15,000+ and can only afford £150/month, you’ll be paying for 10+ years. In that scenario, an IVA is usually a better option because it writes off remaining debt after 5-6 years.
Who Is a DMP Suitable For?#
DMPs work well for:
- People with smaller debts (under £6,000) — You can realistically repay in full within 5-7 years
- People with variable income — DMPs are flexible; you can increase, decrease, or pause payments as needed
- People who want to avoid legal commitment — DMPs aren’t binding, so you’re free to leave at any time
- People who don’t qualify for an IVA — If you don’t meet IVA criteria (usually £6,000+ debt from 2+ creditors), a DMP might be your best option
DMPs aren’t suitable for:
- Large debts (£6,000+) — You’ll be paying for years, and an IVA would write off remaining debt after 5-6 years
- People who can’t afford any payment — If your income barely covers essentials, a Debt Relief Order might be better
- People facing immediate legal action — DMPs don’t stop bailiffs or court action; IVAs do
Pros of a DMP#
Flexibility: You can increase, decrease, or pause payments if your circumstances change. You’re not locked into fixed payments like you are with an IVA.
No legal commitment: You can cancel the DMP at any time if you find a better solution or if your situation improves.
Free options available: Debt charities offer free DMPs. All your payment goes toward reducing your debt, with no fees deducted.
Creditors often freeze interest: Most creditors agree to freeze interest and charges on a DMP, so your debt stops growing.
One simple payment: Instead of juggling multiple creditor payments, you make one payment to the DMP provider each month.
Less impact on credit rating than IVA or bankruptcy: DMPs affect your credit score, but not as severely as an IVA or bankruptcy.
Cons of a DMP#
Takes longer to clear debt: Because you’re paying less each month, it takes years (sometimes 10+) to repay everything.
No debt write-off: Unlike an IVA, you have to repay every penny you owe. There’s no write-off at the end.
Creditors can still take action: DMPs aren’t legally binding, so creditors can withdraw from the arrangement, add interest, or take you to court.
Interest might not be frozen: Creditors don’t have to freeze interest. If they don’t, your debt keeps growing even while you’re paying.
Affects your credit rating: DMPs are recorded on your credit file for 6 years, making it harder to get credit during and after the plan.
Might cost fees: Commercial debt management companies charge setup and monthly fees. These fees reduce how much actually goes toward your debt.
DMP vs IVA: Which Is Better?#
If you have £6,000+ in debt, an IVA is usually better than a DMP.
Here’s why:
| Feature | DMP | IVA |
|---|---|---|
| Legally binding | No | Yes |
| Debt write-off | No — you repay everything | Yes — remaining debt written off after 5-6 years |
| Duration | As long as it takes (5-15+ years) | 5-6 years |
| Stops creditor action | No — creditors can still take legal action | Yes — creditors can’t contact you or take action |
| Interest frozen | Maybe — creditors can say no | Yes — all interest and charges frozen |
| Flexibility | High — can pause, adjust, or cancel anytime | Low — fixed payments, hard to change |
| Fees | Free (charities) or monthly fees (companies) | Fees included in payments |
| Credit impact | Negative for 6 years | Negative for 6 years |
Example:
- You owe £12,000
- You can afford £150/month
With a DMP: You’ll pay for 80 months (6.7 years) if interest is frozen. If creditors don’t freeze interest, it’ll take even longer.
With an IVA: You’ll pay £150/month for 60 months (5 years) = £9,000 total. The remaining £3,000 is written off.
The IVA is faster, legally protected, and writes off debt. For most people with £6,000+ debt, it’s the better option.
Use our IVA calculator to see if you qualify and how much debt you could write off.
How to Set Up a DMP#
Step 1: Get free debt advice
Before you commit to a DMP, speak to a debt adviser. They’ll assess your situation and confirm whether a DMP is the best option.
Free advice is available from:
- StepChange
- National Debtline
- Christians Against Poverty
- Citizens Advice
- IVA Advice
Step 2: Work out your budget
The adviser will help you create a budget showing:
- Your income (wages, benefits, etc.)
- Your essential expenses (rent, food, utilities, priority debts)
- Your disposable income (what’s left for unsecured debts)
Your DMP payment will be your disposable income divided among your creditors.
Step 3: Choose a DMP provider
If a DMP is suitable, choose a provider. Free debt charities are usually the best option because they don’t charge fees.
Avoid commercial debt management companies that charge setup fees and monthly fees — these reduce how much goes toward your debt.
Step 4: The provider contacts your creditors
The provider will contact each creditor, explain your situation, and propose the DMP. They’ll ask creditors to:
- Freeze interest and charges
- Accept reduced monthly payments
- Agree to the DMP arrangement
Most creditors agree because they’d rather receive regular payments than risk you going bankrupt.
Step 5: Make your monthly payment
Once the DMP is set up, you make one monthly payment to the provider. They distribute it among your creditors.
You’ll receive regular updates showing how much you’ve paid and how much is left.
Step 6: Review and adjust as needed
DMPs are flexible. If your income drops (you lose your job, for example), contact the provider. They can reduce your payment or arrange a payment break.
If your income increases, you can increase your payment to clear the debt faster.
What Happens If You Can’t Afford Your DMP?#
If your circumstances change and you can’t afford your DMP payments anymore, contact your provider immediately.
They can:
- Reduce your monthly payment
- Arrange a payment break (usually 1-3 months)
- Reassess your budget to free up more money for essential expenses
If you genuinely can’t afford any payment, you might need to consider other debt solutions:
- Debt Relief Order — If you have less than £50,000 debt, less than £75/month spare income, and few assets
- IVA — If you have £6,000+ debt and can afford some monthly payment
- Bankruptcy — If your debts are completely unmanageable and you have no assets
Don’t ignore the problem. If you stop paying your DMP without telling the provider, creditors can withdraw from the arrangement and restart enforcement action.
Will a DMP Affect My Credit Rating?#
Yes. A DMP will appear on your credit file and negatively affect your credit score for 6 years.
Even if you complete the DMP early, it stays on your credit file for 6 years from the start date.
This makes it harder to:
- Get approved for credit cards, loans, or mortgages
- Pass credit checks for renting a property
- Get mobile phone contracts
- Open certain bank accounts
But here’s the thing: if you’re considering a DMP, your credit rating is probably already damaged. Missed payments, defaults, and CCJs all stay on your credit file for 6 years anyway.
A DMP shows you’re taking steps to repay your debts, which is better than ignoring them. Once the DMP is complete and it drops off your credit file, you can start rebuilding your credit rating.
Alternatives to a DMP#
If a DMP isn’t suitable, consider:
Individual Voluntary Arrangement (IVA): Legally binding, writes off remaining debt after 5-6 years, suitable for £6,000+ debt.
Debt Relief Order (DRO): Lasts 12 months, then debts are written off. Suitable for people with under £50,000 debt, less than £75/month spare income, and few assets.
Bankruptcy: Writes off most debts within 12 months, but you lose control of your assets. Usually a last resort.
Debt consolidation loan: Combine all your debts into one loan with a single monthly payment. Only works if you can get approved and the interest rate is lower than your current debts.
If you’re struggling with debt and want to find out what options are available, use our free IVA calculator to see if you qualify and how much debt you could write off. It takes 2 minutes and won’t affect your credit score.
Frequently Asked Questions#
Can I set up a DMP myself without a provider?#
Yes, but it’s harder. You’d need to contact each creditor individually, negotiate payments, and manage all the payments yourself. Most people use a provider because they handle all the admin and negotiation.
Will creditors definitely freeze interest on a DMP?#
No, but most do. Creditors aren’t legally required to freeze interest, but they usually agree because it’s in their interest to get regular payments rather than risk you defaulting.
Can I cancel a DMP if I change my mind?#
Yes. DMPs aren’t legally binding, so you can cancel at any time. But if you do, creditors can restart enforcement action and add interest back onto your debts.
How much does a DMP cost?#
Free debt charities (like StepChange) offer free DMPs. Commercial debt management companies charge setup fees (£50-£300) and monthly fees (£20-£50). Always use a free charity service if possible.
Can creditors take me to court while I’m on a DMP?#
Yes. Because DMPs aren’t legally binding, creditors can still take legal action if they want to. This is rare if you’re keeping up with payments, but it’s a risk.
Is a DMP better than an IVA?#
For smaller debts (under £6,000), a DMP might be better because of the flexibility. For larger debts (£6,000+), an IVA is usually better because it writes off remaining debt after 5-6 years and stops creditor action.
If you’re struggling with debt and want to find out what options are available, use our free IVA calculator to see if you qualify and how much debt you could write off. It takes 2 minutes and won’t affect your credit score.