Tackling your debts

What are the advantages and disadvantages of a debt management plan (DMP)?

Posted 19 December 2015

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Thinking of entering into a debt management plan? Find out the advantages and disadvantages here.

If you are struggling to repay problem debt it can feel like a heavy burden. Thankfully, there are ways you can ease that burden and pay your debts off at the same time. One of those ways is by entering into a debt management plan - usually known as a DMP. This is an informal debt solution that allows you to repay what you owe at a rate that you can afford, and is sustainable for you.

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So, we’ve established that a debt management plan can help you get your problem debts under control, but what are the advantages and disadvantages of entering into one? 

The pros of a DMP

You’ll pay less – you’ll start to pay one monthly amount that’s a lower payment than what you’re paying now. It’ll be a payment based on what you can realistically afford and stick too. It will also be worked out so that you have enough each month to pay for all the other essentials you have. So you’ll always have enough for your utility bills, your food, rent or mortgage, travel costs and so on. 

You should receive less contact from your lenders – once your DMP is up and running they’ll really have no reason to be contacting you (apart from to send you statements from time to time). In any case, if they do, you can always ask your debt advisor to deal with it for you, if you’re not confident doing it yourself.  

Your lenders may agree to stop adding further interest and charges.  As DMPs are not a formal solution, your lenders don’t have to agree to stop charges and interest, but in our experience, they often do. And, although you are not formally protected from legal action, as you would be on other formal debt solutions, like an IVA or bankruptcy, it is likely that your lenders won’t try to take you to court because you are making an effort to pay. 

DMPs are also confidential.  Unlike formal (insolvency) debt solutions your name isn’t entered into any public register if you decide to start a DMP.  So the only people that need to know are your DMP provider, you, and your lenders.

The cons of a DMP 

Your lenders may not agree: there is the possibility that your lenders may not be happy with the reduced payments you offer them. They are not obliged to accept anything other than what you originally agreed to repay – but they are obliged to give your offer proper consideration and to treat people in financial difficulty fairly.  As DMPs are not formal debt solutions, they are under no obligation to accept a reduction, although again, if they can see that the offer you have put forward is reasonable and based on what you can afford then they usually will.  If they don’t accept it then they can continue on with any legal action.

If you start a DMP it will take you longer to clear your debts - because you’re reducing your payments it will take you longer overall to pay off what you owe. 

You may end up paying more – this is because lenders are not obliged to stop adding interest and charges to your account. They often do stop, but they cannot be forced to. And, as you are going to be taking longer to pay your debt off, there’s more time for interest to be added to your balance.

Your credit score will be damaged – if you reduce your payments, it will affect your credit score. It will remain on your credit history for at least six years. During this time you may find it more difficult to get credit, or you’ll be offered deals that are more expensive than they would have been, if you’d had a good credit history.  However, if you are already behind, or have defaulted, on your repayments you may find that your credit history has already been damaged before you even start a DMP.    

So, we hope you now know a little more about DMPs. If you think this might be the solution to your problem debt, why not have a read about them in more detail here. And if you’d like to talk to someone about whether a DMP is the right debt solution for you, just use one of the ‘contact us’ options on the left of the page.     



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.