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Do I need to pay for a debt solution?

Posted 09 January 2016

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If you’re thinking of entering into a debt solution, cost may be an issue. Find out what each one will cost you in this blog.

If you’re thinking of entering into a debt solution to ease your problem debt, you need to know what it’s going to cost you. Some debt solutions have fees, others don’t so which one is going to be the best for you? 


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First a clarification, the debt solutions you see mentioned here are for people in England and Wales. If you live in Scotland, the solutions available to you are detailed on our Scottish Solutions page.  

Right, now that’s done, let’s get on with the cost of debt solutions, with the first one being a Debt Management Plan (DMP).

Debt Management Plan (DMP)

First, it’s worth noting that there are lots of different debt management services available and the support provided to you can vary significantly. We have listed below some of the services that we provide; but it is worth checking exactly what you are getting before making a commitment: 

• Helping you create a budget, which details what you can afford to pay

• Negotiating with lenders to set arrangements

• Negotiating the amount of interest incurred & attempting to have this frozen

• Dealing with any post or contact you get from your lenders

• Calculating and collecting a single payment from you each month and sending the agreed payments to your lenders each month 

• Supporting you with any potential legal action 

• Offering support to reduce utility bills or claim extra benefits 

The cost of setting up a DMP varies depending on where you go to get it set up. There are charitable organisations that could help you to set up a plan and fee charging companies that may charge an administration fee and in some cases an initial set-up fee. 

Some organisations will just help you create a budget and then it is up to you to liaise with your creditors and make the payments each month, other companies will manage the whole process for you. 

No company should ever charge you more than half of what you pay them each month in fees. But if you decide you want to pay a fee for the additional services, make sure to look around as there are some companies that charge less than others.

You can, of course, have a go at setting up a DMP yourself. It’s not a formal debt solution and is not a form of insolvency either. Because of this, your lenders are not obliged to agree to it, or accept any of the terms you put forward, such as stopping the addition of fees, charges and interest to your debt. This is where a debt management company can come in handy, as they’ll be experienced at negotiating the best deal possible for their client – you. 

As an example of what you may be expected to pay for a DMP, here’s what DAC charge, taken from our fees page 

A management fee will be charged of 18.5% of your regular payment to the Debt Management Plan (DMP) (this could be every four weeks or monthly depending what suits you best and when you receive your regular income), and is subject to a minimum of £38.50 and a maximum of £90. This fee covers the month-to-month running of your DMP, including negotiating with your lenders, distributing payments and taking care of correspondence between you and your lenders.

This fee also covers our regular reviews of your circumstances - normally once every 12 months (or any other time your circumstances change). If your situation has changed and your ability to keep up with your debt management plan is affected, we can talk to your lenders about changing your payments accordingly.”

Debt Relief Order (DRO)

Debt Relief Orders are very different to DMPs in that they are an official form of insolvency. This means that you need to apply for one through an approved intermediary. It is not possible to apply for a DRO yourself. Regardless of which approved intermediary you use, there’s a £90 fee to the insolvency service that needs to be paid. Other than that, there should be no other charge for a DRO. Here’s what we say about DROs on our page:

We are an approved intermediary (you can only apply for a DRO through an approved intermediary) and do not charge for these services.

In all cases, if you decide to apply for a DRO, you will need to pay a fee an administration fee of £90 to the Insolvency Service when you submit your application.


The fee to make a petition for bankruptcy is £525, plus £180 court costs too.  If you decide to use us, DAC does not charge for preparing the documents for the petition for bankruptcy. 

If you’re not able to afford the fee, see our page on what to do next – I can’t afford the bankruptcy fee, what do I do?  

Individual Voluntary Agreement (IVA) 

All IVA providers charge for the setting up and ongoing administration of IVAs, this is because it can only be set up by an Insolvency Practitioner (IP).  The fees are only payable once your IVA has been approved and are deducted from your monthly IVA payments. At this time, there are no regulations as to what an IP can charge for their services in setting up an IVA, but the fees that IPs charge must be approved by creditors when they vote on whether to approve IVAs, which has had the effect of reducing fees. The fees is made up of:

a Nominee’s fee – this part of the fee covers the administration costs of setting up the IVA, which includes assisting with the preparation of the IVA proposal that will be sent to your lenders for their agreement and organising the creditors meeting. This fee is usually capped by the creditors at the creditor meeting and is usually equal to the first 4-6 months of IVA payments. These payments are paid from your usual monthly contribution and not in addition. This fee is taken before any monies are sent to your lenders.   

a Supervisor’s fee – this covers the cost of the ongoing supervision involved in the IVA. Here’s what our fees page for an IVA states:

“The Supervisor’s fees cover the ongoing work involved in running your IVA and is calculated as a percentage of “realisations”: typically it is charged at 15–18% of any money received by the Supervisor and distributed to your lenders, such as your monthly contributions, any assets (e.g. the equity in your property, successful PPI misselling claims) and windfalls (e.g. an inheritance) that you receive during the term of your IVA.”

costs and expenses – there are also certain costs the IP can claim back, such as postage, again these will be deducted from the amount you pay into your IVA and you will not be asked to pay these in addition to your monthly contributions.  You can see what you’d be charged if you came to DAC to set up an IVA on our fees page. 

Before you go ahead with an IVA, DAC will compile an in depth analysis of your income and expenditure (known as an I&E) to make sure you are comfortable with the amount you will need to pay each month, that it is sustainable over the term and takes into account any forthcoming changes in circumstance that you know about.

All of these fees will only apply if, and only if, your lenders approve the IVA. If they don’t, you’ll pay nothing to the Insolvency Practitioner.  

If you want to learn more about any of these debt solutions, have a look at our pages on each of them here. And, if you think you might like to use one to help you solve your problem debt, why not have a talk with one of our trained debt advisors. Just choose one of the ‘contact us’ links to get started.  


by Shelley Bowers

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To find out more about managing your money and getting free debt advice, visit Money Advice Service, an independent service set up to help people manage their money.