How a DMP Works
A Debt Management Plan is refreshingly simple compared to formal insolvency. There's no court involvement, no legal procedures, and no Insolvency Practitioner. Here's the process:
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Financial Assessment
You work with a DMP provider (charity or commercial company) to complete a budget showing income and essential expenses. This uses the Common Financial Statement — a standardized budget tool accepted by creditors. Your "surplus" (what's left after essentials) becomes your DMP payment.
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Creditor Negotiation
Your provider contacts all creditors with your offer. They request: reduced monthly payments based on affordability, frozen interest and charges (not guaranteed), and acceptance of pro-rata distribution (each creditor gets a fair share based on what they're owed).
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Setting Up the Plan
You don't need creditor approval to start — it's informal. You make one monthly payment to your DMP provider. They distribute it to creditors pro-rata. For example, if you owe 40% of your debt to one creditor, they get 40% of your payment.
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Monthly Operation
Each month: you pay your DMP provider, they distribute to creditors, creditors receive payment and (hopefully) don't contact you. Free providers pass 100% to creditors. Fee-charging companies take their cut first.
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Regular Reviews
Your circumstances are reviewed annually or when things change. Payments can go up if income increases, down if you're struggling, or you can make lump sum payments to clear debts faster.
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Completion
The DMP ends when all debts are paid in full. There's no certificate or formal completion — you've simply repaid what you owed. Your credit file will gradually improve as accounts show as settled.
Free vs Fee-Charging DMP Providers — Critical Distinction
This is perhaps the most important section of this guide. There are two types of DMP provider, and choosing wrong could cost you thousands.
FREE Charity Providers
Several charities offer completely free DMPs. They charge nothing — 100% of your payment goes to creditors:
StepChange Debt Charity
The UK's largest debt charity. Online and phone service. Handles over 150,000 DMPs. Completely free, no catches.
National Debtline
Run by Money Advice Trust. Free phone service: 0808 808 4000. Excellent for complex situations.
Citizens Advice
Face-to-face appointments available. Good for those preferring in-person help. Completely free service.
PayPlan
Free online DMP provider. Quick setup process. Good digital tools for managing your plan.
Fee-Charging Commercial Companies
Many companies charge for DMPs. They're FCA-regulated but take fees from your payments:
- Setup fees: Often £100-500 upfront
- Monthly fees: Typically 15-20% of your payment or £20-50/month
- First payments kept: Some keep your first 2-3 payments entirely
Example impact: £200/month DMP with 17% fees = £34/month to the company. Over 5 years, that's £2,040 that doesn't reduce your debt. Your DMP lasts longer and costs more.
Why Do Fee-Charging Companies Exist?
They claim to offer "better service" or "stronger negotiation." In reality:
- Charities use the same negotiation techniques
- Creditors don't care who manages your DMP
- Free providers often have better relationships with creditors
- The FCA requires the same standards from all providers
Our Clear Recommendation
ALWAYS try free charity providers first. There is virtually no scenario where paying fees makes sense. The money going to fees could clear your debts faster. If a company is pushing you toward their fee-charging DMP, question their motives.
Eligibility — Who Can Get a DMP?
DMPs have the widest eligibility of any debt solution:
Basic Requirements
- Some disposable income: Even £20/month can work
- Unsecured debts: Credit cards, loans, overdrafts, etc.
- Commitment to repay: You must intend to repay in full
- UK resident: Or have UK debts
NO Minimum Requirements
Unlike formal solutions, DMPs have no:
- Minimum debt amount (works for £500 or £50,000)
- Minimum number of creditors (even one is fine)
- Asset restrictions
- Employment requirements
- Credit score requirements
Best Suited For
- Temporary financial difficulties (job loss, illness, divorce)
- People who can repay debts but need more time
- Those wanting to avoid formal insolvency
- Homeowners protecting their property
- People in sensitive employment (where IVA/bankruptcy affects job)
Less Suitable For
- Very high debts with low income (would take decades)
- People facing immediate legal action (no protection)
- Those with only priority debts (rent, council tax)
- Anyone who could qualify for a Debt Relief Order
Key Advantages of a DMP
🔄 Complete Flexibility
Change payments up or down as circumstances change. Take payment holidays in emergencies. Make lump sum payments to clear debt faster. Cancel anytime without penalties.
🏠 No Asset Risk
Your home, car, and possessions are completely safe. No one can force you to sell anything. No equity release requirements. Keep everything you own.
🔒 Privacy
Not on any public register. Employer doesn't need to know. No publication in The Gazette. Only shows on credit file as reduced payments.
💰 Can Be FREE
Through charities, there are no fees whatsoever. Every penny goes to reducing your debt. No hidden costs or catches.
📋 All Debts Included
Include any unsecured debt you want. Add new debts if they arise. Remove debts if you want to pay them separately.
⏱️ No Fixed Term
Pay off faster if circumstances improve. No penalties for early settlement. Inherit money? Clear everything immediately.
Key Disadvantages — The Reality
Many sites downplay DMP disadvantages. Here's what you really need to know:
⚖️ NO Legal Protection
This is the biggest drawback. Creditors can:
- Continue calling and writing
- Take you to court for a CCJ
- Instruct bailiffs (after getting a CCJ)
- Apply for charging orders on your home
- Petition for your bankruptcy (rare but possible)
In practice, most creditors don't take action if you're paying regularly, but you have no legal shield.
⏰ Can Take Forever
With no debt write-off, duration can be extreme:
- £30,000 debt at £200/month = 12.5 years (if all interest frozen)
- £50,000 debt at £300/month = 14 years
- If some creditors charge interest, add more years
Many people never finish a DMP — they switch to IVA or bankruptcy after years of payments.
❄️ Interest Not Guaranteed Frozen
Creditors are asked to freeze interest but can refuse. Common scenarios:
- Some freeze immediately, some don't
- Some freeze after 3-6 months of payments
- Some reduce interest but don't freeze entirely
- Some restart interest if you miss payments
You could pay for years with the balance barely moving.
📊 Still Damages Credit
While not as severe as IVA/bankruptcy, impact is real:
- Shows as "arrangement to pay" on credit file
- Monthly markers show reduced payments
- Score drops significantly
- Getting credit becomes very difficult
- Some mortgage lenders view DMPs negatively
🚪 Creditors Can Leave
Any creditor can withdraw from the DMP and pursue normal collection. This might happen if:
- They don't think you're paying enough
- The debt is sold to a aggressive collector
- Company policy changes
- You miss payments
💷 No Write-Off
This cannot be overstated: you repay every penny owed (plus any interest not frozen). If you owe £40,000, you pay £40,000. An IVA might write off £20,000+ of that.
DMP vs IVA vs Bankruptcy
| Feature | DMP | IVA | Bankruptcy |
|---|---|---|---|
| Debt Written Off | None | 50-70% | Most debts |
| Duration | Until paid (5-15+ years) | 5-6 years fixed | 12 months |
| Legal Protection | No | Yes | Yes |
| Interest Frozen | Usually (not guaranteed) | Yes (legally required) | Yes |
| Credit Impact | Moderate | Severe (6 years) | Severe (6 years) |
| Public Record | No | Yes (Insolvency Register) | Yes (Gazette + Register) |
| Flexibility | Very flexible | Rigid structure | No flexibility |
| Asset Risk | None | Low (equity review) | High (may lose home/car) |
| Cost | Free (charities) | IP fees from payments | £680 application |
| Minimum Debt | None | ~£6,000 | ~£5,000 |
When to Choose DMP Over IVA
- Your debts are manageable (under £15,000)
- You expect your situation to improve soon
- You work in a profession where IVA causes problems
- You value flexibility over legal protection
- You can realistically repay within 5-7 years
When IVA is Better Than DMP
- High debts that would take 10+ years on a DMP
- You need legal protection from creditors
- You want guaranteed interest freezing
- You need a fixed end date
- You want partial debt write-off
Learn more about alternatives:
- Individual Voluntary Arrangement (IVA) — Legal protection with debt write-off
- Bankruptcy — Fastest resolution for serious debt
- Detailed IVA vs DMP Comparison
The Verdict — Is a DMP Right for You?
✅ A DMP IS Right for You If:
- You can realistically repay debts within 5-7 years
- Your financial difficulty is temporary
- You want to avoid formal insolvency
- You value flexibility over legal protection
- You have assets to protect
- Your job prohibits insolvency
- Most creditors are cooperative
- You have some disposable income
❌ A DMP is NOT Right for You If:
- Repayment would take 10+ years
- Creditors are taking legal action
- You're facing bailiff action
- You have no disposable income
- Your situation won't improve
- You'd qualify for a DRO (under £30k debt)
- An IVA would write off 50%+ of debt
- You need guaranteed protection
Ready to Explore Your Options?
Use our calculator to compare how long a DMP would take versus an IVA write-off.
Frequently Asked Questions
Is a DMP legally binding?
No, a DMP is an informal arrangement, not legally binding on either party. Creditors can still take legal action, add interest, or withdraw from the plan. You can also change or cancel it anytime. However, most creditors prefer to receive regular payments through a DMP rather than risk getting nothing through enforcement action.
Will interest be frozen on a DMP?
Interest freezing is requested but not guaranteed. Most creditors will freeze interest and charges as a goodwill gesture, especially after seeing 3-6 months of regular payments. However, they're not legally required to do so. Some may continue charging interest, particularly credit cards and payday lenders. Always ask your DMP provider for a breakdown of which creditors have agreed to freeze interest.
How long does a DMP last?
A DMP lasts until all debts are repaid in full. Duration depends entirely on your debt amount and monthly payment. For example: £20,000 debt with £200/month payments would take 100 months (8.3 years) if all interest is frozen. If some creditors charge interest, it takes longer. You can reduce the duration by increasing payments when possible or making lump sum payments.
Can I get a free DMP?
Yes! Several charities offer completely free DMPs: StepChange (0800 138 1111), National Debtline (0808 808 4000), Citizens Advice, and PayPlan. They don't charge setup or monthly fees — 100% of your payment goes to creditors. Never pay for a DMP without first trying these free services. Fee-charging companies often take 15-20% of your payments.
Will a DMP affect my credit score?
Yes, a DMP will affect your credit score, though less severely than IVA or bankruptcy. If you're paying less than contractual minimums, it's recorded as an "arrangement to pay" on your credit file. This shows as reduced payments each month, lowering your score. However, it's better than defaults or CCJs. The impact lessens over time as you maintain regular payments.
Can I cancel a DMP?
Yes, you can cancel a DMP at any time — it's completely flexible. You might cancel to: increase payments directly to creditors, switch to an IVA or bankruptcy, or if your circumstances improve significantly. Just inform your DMP provider. Note that creditors may resume normal collection activities, including interest and charges, once the DMP is cancelled.
What debts can be included in a DMP?
You can include most unsecured debts: credit cards, personal loans, overdrafts, store cards, catalogue debts, payday loans, and arrears on utilities or council tax. You cannot include: mortgages, secured loans, hire purchase (if keeping the goods), court fines, student loans, or child maintenance. Priority debts (rent, council tax) should be dealt with first before entering a DMP.
Can creditors refuse a DMP?
Yes, creditors can refuse to accept a DMP, though most don't. They might refuse if: payments are extremely low, they believe you can afford more, or they prefer to pursue legal action. However, you can still proceed with willing creditors. Even refusing creditors often accept payments eventually, as something is better than nothing.