A debt management plan helps you repay debts affordably through one monthly payment distributed to creditors. This guide explains how to set up a DMP, calculate payments, and choose between free and fee-charging providers.
Check EligibilityCalculate realistic payments based on your disposable income after essential living costs.
DMP provider contacts creditors proposing reduced payments and potential interest freezes.
Make one monthly payment distributed proportionally among all creditors based on debt amounts.
Setting up a DMP is straightforward but requires careful planning to ensure payments are sustainable long-term. Here's the complete step-by-step process.
Before contacting providers, understand your finances clearly:
Calculate Monthly Income:
List Essential Expenses:
Calculate Disposable Income:
Example Calculation:
Monthly income: £1,800
Essential expenses: £1,500
Disposable income: £300
This £300 is available for debt repayment in your DMP.
Create a comprehensive list of debts suitable for DMPs:
Debts That Can Be Included:
Debts That Should NOT Be in DMPs:
For each debt, note:
You have two main options: free charity providers or commercial fee-charging companies.
Free DMP Providers (Recommended):
Advantages: 100% of your payment reaches creditors, no setup fees, impartial advice.
Commercial DMP Providers:
Some companies charge fees for DMP services:
When to consider: Only if free providers can't help or you need specialized services. Always check if free alternatives exist first.
Your chosen provider conducts a detailed assessment:
Information They'll Request:
Assessment Process:
Your provider divides your disposable income among creditors proportionally based on debt amounts:
Example Pro-Rata Distribution:
Total debts: £15,000
Monthly DMP payment: £300
Each creditor receives their fair share based on debt size.
Your DMP provider contacts each creditor on your behalf:
What They Propose:
Creditor Responses:
Most creditors accept DMPs because regular reduced payments beat legal action costs. However, acceptance isn't guaranteed—DMPs are voluntary arrangements.
Once creditors accept, set up your payment:
Choose a payment date shortly after you receive income (e.g., 3-5 days after payday) to ensure funds are available.
Your DMP begins with your first payment:
Once your DMP starts, your provider handles:
While your provider handles creditors, you must:
DMP setup timeline:
Most DMPs are fully set up within 3-4 weeks from initial contact.
If creditors refuse reduced payments:
Rejection is rare—most creditors prefer receiving something over nothing. Persistence usually succeeds.
Your provider will help you decide:
Calculate your disposable income, contact a DMP provider (free charities or commercial companies), complete their assessment, allow them to contact your creditors with reduced payment proposals, then start making one monthly payment they distribute among creditors.
Free DMP providers (StepChange, PayPlan, National Debtline) charge nothing. Commercial providers may charge setup fees (£100-300) and monthly management fees (5-15% of payments), reducing amounts reaching creditors initially.
Yes, you can set up an informal DMP by contacting creditors directly yourself. This avoids fees but requires more effort negotiating with each creditor individually and managing multiple payments without intermediary support.
DMPs include unsecured debts: credit cards, personal loans, overdrafts, store cards, payday loans, utility bill arrears, and council tax arrears. Secured debts (mortgages, secured loans) and priority debts aren't suitable for DMPs.
Most creditors accept DMPs as they prefer regular reduced payments to no payments. However, there's no legal obligation—creditors can reject proposals and pursue full payments through legal action. Having a DMP provider negotiate improves acceptance chances.
DMPs last until debts are fully repaid. If paying £200/month toward £15,000 debt with frozen interest, the DMP lasts 75 months (6.25 years). Length depends on total debt and affordable monthly payment amount.
Yes, credit score doesn't affect DMP eligibility. DMPs are for people already struggling with debt, so poor credit is expected. However, DMPs damage credit further as missed payments and defaults accumulate during reduced payment periods.
Free providers (charities) offer identical services without fees—100% of your payment reaches creditors. Paid providers charge fees, meaning less reaches creditors initially. Unless you need specific services, free DMP providers are recommended.
List of all debts with creditor names, account numbers, and balances. Income evidence (payslips, benefits letters). Bank statements. Detailed breakdown of monthly expenses. Proof of address. DMP provider uses this to calculate affordable payments.
Council tax arrears can be included in DMPs, but councils prefer separate payment arrangements. If you have current year council tax, pay it separately to avoid court action. Past arrears can join the DMP with reduced payments.
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