What is a Debt Management Plan?

A Debt Management Plan (DMP) is an informal agreement between you and your creditors to repay your debts at a reduced monthly rate based on what you can genuinely afford.

A DMP is typically arranged through a third party — either a free debt charity such as StepChange, or a paid debt management company. You make one monthly payment to the DMP provider, who distributes it to your creditors.

How a DMP works

Your DMP provider calculates how much you can afford to pay each month after covering essential living costs. This amount is divided between your creditors. Creditors are contacted and asked to freeze interest and charges, though this is not guaranteed.

A DMP affects your credit file — debts managed this way will be recorded. It is not a formal insolvency arrangement but does stay on your credit file for six years.

Free vs paid DMP services

StepChange Debt Charity, National Debtline and Citizens Advice all provide DMPs for free. Paid debt management companies charge fees — typically deducted from your monthly payment. There is no benefit to using a paid service for a DMP.

If someone is charging you to set up a DMP, ask why you should pay when the same service is available for free.

When a DMP is a good option

A DMP works well for unsecured debts (credit cards, personal loans, overdrafts) where you can afford to repay in full over a longer timeframe, just not at the current contracted rate.

If your debts are very large relative to your income, or you own a home with equity, other formal solutions such as an IVA or bankruptcy may be more appropriate. Free debt charities can advise on which option suits your situation.