Debt Management Plan – Help And Information About DMP

If you find yourself struggling to make repayments on things such as personal loans, store cards or credit cards, a Debt Management Plan (DMP) could help you to manage your situation. DMPs are just one of the choices available to UK debtors looking for a solution to their money troubles, with an informal and flexible approach to credit management.

They can certainly help debtors on their way to a more manageable level of debt, but which route is right for you will depend on your circumstances. A sensible approach to working this out is to seek the advice of a qualified financial advisor or insolvency practitioner, but it can be useful to know the basics before you approach anyone for guidance.

What is a Debt Management Plan?

A Debt Management Plan is an informal agreement made between a debtor and their creditors to make regular repayments towards an outstanding debt, normally in circumstances where they are struggling to meet the repayment amount that they originally agreed to.

DMPs are usually set up by a third-party provider (for instance a charity or private company) who will help you to create a financial plan that is affordable for you. This will typically include a budget for you to stick to, along with a plan for making regular repayments towards your debts that should suit your unique financial circumstances. With a plan in place, you should have enough money to cover the essentials such as food, accommodation, utilities and transport whilst putting any surplus towards paying your creditors.

Pros and Cons

All debt management solutions come with their own advantages and disadvantages, and debt management plans are no different.

One of the most obvious benefits is that a DMP will allow you to make reduced monthly payments to your creditors that are affordable for you in your current situation. Whilst this can you to cope with difficult financial circumstances, the trade-off is that unlike certain other debt solutions, DMPs are not legally binding and your creditors can still contact you or initiate legal proceedings if the need arises.

Do debt management plans hurt your credit?

Despite not being a formal insolvency solution, it will often affect your credit score and ability to access further credit in the future. This is because your DMP is likely to involve agreeing to make payments towards debt that are less than the minimum repayment amount agreed at the time when you took out credit.

When creditors review your credit file, there are a few tell-tale signs that indicate you are on a debt management plan. These include your payment history, which could show part repayments towards outstanding debts, ‘markers’ on accounts where the creditor has agreed to accept payments, and details of any time where a creditor has defaulted your account.

Although these factors might influence the decisions of credit providers that you may approach in the future, they won’t be there forever and details of any court action missed payments or defaults will be removed from your credit file six years after they happen, whether you have fully repaid or not.

Buying a car while on a DMP

Car Finance

In today’s world, a car is essential for many people to live and work. If you are on a DMP, it is important to keep the costs of essentials under control, and this includes those for transport. Whilst purchasing a car during the course of a debt management plan is not prohibited, many agreements state that you must not take out additional credit without consulting your plan provider beforehand.

Even if you are on a DMP, the need to purchase a new vehicle may be unavoidable. If you rely on your car to get to work, going without could prevent you from getting where you need to be, setting you back and leaving you unable to keep up you’re your payments. If you do find yourself in need of a new car, it can be useful to first weigh up all of the available options and work out whether the costs associated with purchasing and running a vehicle will be realistic and affordable based on your circumstances. The costs don’t just stop at buying the vehicle itself and include things such as road tax, insurance, MOTs and fuel – all of which can affect your overall budget.

Keep in mind that being on a DMP can affect your credit report and score, which in turn can make it much more difficult to access further credit. Even if you have the agreement of your provider, finding a company that is willing to offer you car finance might be a challenge and they may only do so with a high rate of interest attached.  

Can you finance a car after a debt management plan?

Many debtors who complete a DMP find themselves in a much more stable financial position than when their arrangement began, and it can be tempting to apply for further credit or make larger purchases.

Whilst the process of financing a car after a DMP has ended will be same as for any other person, vehicle finance providers may still view your credit file critically as details of any missed payments or defaults or court action will remain on your file for six years from the date that they happen. Although in theory you can finance a car, in reality you may find doing so to be a struggle – at least until your credit report is clear.

Can you go on holiday with a debt management plan?


As an informal solution to debt management, DMPs do not usually have rules against going on holiday, but they may limit the amount you can spend on a trip away. The purpose of it is to ensure that your living costs are well budgeted to enable you to make affordable repayments to your creditors and spending too much on a break could jeopardise this.

When helping you to set up a plan, your provider will usually allow you to put aside some money for certain non-essential costs for things such as birthdays and Christmas. As such, you may be able to save up for a holiday whilst continuing with your budget and repayments, although it could take you longer to do so. It is also worth remembering that as debt management plans are not a formal or legally binding debt solution, taking out further credit to pay for a holiday during the course of your plan might be frowned upon by your existing creditors – who could look to begin enforcement action against you.

Will a Debt Management Plan Affect My Mortgage?

In the majority of cases, it should not affect your home as long as you continue to make repayments towards your rent or mortgage. These are priority debts and failing to pay them could result in severe consequences. When setting up a debt solution, the costs of your rent or mortgage should be covered within your budget as an essential expenditure. Keep in mind, however, that it is not a formal insolvency solution and does not prevent your creditors from taking legal action against you – which could affect your home.

Whilst your existing rent or mortgage should not be affected by a DMP, applying for a new mortgage or tenancy agreement may be a different story. For one thing, some agreements include restrictions on the amount of debt that you can take out without first seeking the agreement of your provider and, in any case, your existing creditors may not be willing to continue cooperating with your plan if you are actively seeking significant amounts of new credit. As being on a debt management plan may affect your credit score, you might find it more difficult to find a mortgage lender willing to make you an offer even if you do have the blessing of your provider.

How to save money on a DMP?

Piggy bank calculator savings

Being unable to rely on the safety net of savings is one of the primary reasons people fall into debt issues in the first place. When you’re hit with an unexpected cost such as a vehicle repair or the need to replace essential white goods, having no savings might mean that your only option is to turn to further credit – which could make it more difficult to deal with your wider debt situation in the long run.

There are a number of ways that you can keep on saving money whilst on a DMP, not least by sticking to your budget and cutting back on non-essential spending.

What if you’re made redundant?

Losing your job is undoubtedly worrying, even more so if you have experienced difficulties with debt and are on a DMP. Fortunately, they are intended as a flexible debt solution and so being made redundant doesn’t necessarily mean that your plan will come to an end.

As with any major change of circumstances during a DMP, it can be helpful to review your financial situation and work out how you can continue making payments that are affordable to you without compromising on the essentials. With feedback and advice from your plan provider, you may have a chance of revising your budget and payments to keep your agreement on track.

Ending a DMP – Can you end or pay off a DMP early?

DMPs are intended to be a flexible debt solution and so you may find that it is possible to end your DMP early by increasing the value of your monthly payments or by paying a lump sum. Your regular payment is worked out by looking at your essential costs and how much you can realistically afford to repay after these have been dealt with. It’s quite common for circumstances to change during the course of a DMP and you may find yourself with surplus funds that you could put towards paying off your debts within a shorter time.

You might also find yourself with extra money from a windfall or redundancy payment, and if this does happen the terms of your agreement will likely require you to notify your provider as soon as possible. They will look at your financial circumstances and make a recommendation which could be to approach your creditors with a partial settlement offer, pay the money into your DMP to spread evenly between your debts or even repay your creditors in full if possible.

What if you can’t afford your DMP?

If you find that you are unable to afford your DMP payments, acting quickly can help. Many debtors find that their first port of call is speaking to their provider and in some cases even seeking advice from a qualified financial advisor. It’s important to keep your creditors up-to-date with your circumstances and your DMP provider will help you to do this whilst looking at ways to make things more manageable.

DMP Failure – How can a DMP fail?

Despite DMPs being considered flexible debt solutions, some circumstances can cause them to fail. In many situations, letting your DMP provider know of any issues or changes to your circumstances can help to prevent failure.

Signs that your plan may not be working include that you’re struggling to make your DMP payments, failing to keep up with priority debts such as a mortgage, or going without essentials such as food or sanitary products to make your DMP payment. DMP failure can happen for lots of reasons, but often it can come down to setting a budget that simply doesn’t work for you or missing payments and letting the debt get on top of you.

Frequently Asked Questions

Accountant debt

As a flexible and informal debt solution, DMPs work in different ways for different people and it makes sense that lots of questions surrounding how they work. We’ve answered some of the most common questions below, but for more information, read our Debt Management Plan FAQ.

Are debt management plans a good idea?

As with any debt solution, whether a debt management plan is a good idea for you will depend on your own circumstances. All major financial decisions, especially those concerning debt, should be taken from a fully informed position after receiving qualified advice and choosing to enter a DMP is no different.

How long do debt management plans last?

There is no set period for which a debt management plan lasts, and as a flexible debt solution, the length of a plan will vary dependent on your circumstances. How long your plan will run for will be calculated based on the amount you owe and how much you can afford to regularly repay, but it could last for as long as 10 to 15 years.