Debt Management Plans: Everything You Need to Know

A debt management plan is an agreement between you and your lenders if you are unable to pay your debts.

Ruth Jackson-Kirby Published on 21 December 2020. Last updated on 20 January 2021.
Debt Management Plans: Everything You Need to Know

If you are struggling to repay your debts, a debt management plan can help you bring your finances under control. Read on to learn the details and what to consider.

What is a debt management plan?

A debt management plan (DMP) is an agreement between you and your lenders if you are unable to repay your debts. You discuss your situation with the DMP provider and agree to an affordable monthly payment. The DMP provider talks to your creditors for you, then takes on your payments and pays your creditors for you.

A DMP doesn’t reduce your debt. You’ll still pay everything off — you just do it more slowly, in smaller monthly amounts.

What can I pay off with a debt management plan?

You can use a DMP to pay off non-priority debts including:

  • Bank loans
  • Buy now pay later debts
  • Catalogue debts
  • Credit cards
  • Overdrafts
  • Payday loans
  • Store cards

If you do get a debt management plan, make sure you include all your non-priority debts. Including them all means you won’t be left with one debt that becomes a problem to pay, and means your creditors are more likely to accept the DMP as they are all being treated the same.

» MORE: Calculate your debt-to-income ratio

What can’t I pay off with a debt management plan?

Priority debts can’t be repaid using a DMP. These include:

  • Child support and maintenance
  • Council tax
  • Court fines
  • Mortgage repayments or rent
  • Utility bills
  • Taxes
  • TV licence

These repayments should be included in your monthly budget when you are working out how much you have left over from your income to put towards your DMP.

How does a DMP work?

You can set up a debt management plan free of charge with StepChange or Payplan, but the lenders you owe need to agree to your DMP. Generally they should if it means they will get their money back rather than you defaulting on the debt.

Your DMP provider will help you work out your budget and what you can afford to pay towards your debts each month. You then make one payment a month to the DMP provider, who in turn pays your creditors.

You’ll carry on making your monthly DMP payments until the debt is cleared or you can afford the original repayments again.

Pros and cons of a debt management plan

A DMP can have big benefits if you are struggling with debt, but it has some downsides too.


  • One affordable monthly payment
  • Creditors less likely to take action against you
  • Peace of mind that you are bringing your finances under control


  • You may pay more in interest as you will be taking longer to repay the debt
  • A DMP will lower your credit score significantly

How a debt management plan affects your credit rating

A DMP will lower your credit rating because you aren’t making the full repayments on your debts. This will be shown on your credit report and shows lenders that you are having difficulties with your finances. This will mean lenders see you as high risk, so you are more likely to have new credit applications rejected.

However, in the long term a DMP can help your credit rating. That’s because you are working to repay your debts and avoid county court judgments and other future problems that could result if you simply stop making repayments.

There are a number of things you can do though to help your credit rating after you’ve had a DMP. Read our guide to improving your credit score to find out more.

Can I borrow money when I have a debt management plan?

It probably isn’t wise to take out further debts while you have a DMP. In fact, some DMPs have it in their terms that you can’t borrow until you’ve finished the plan.

About the author:

Ruth is a freelance journalist with 15 years of experience writing for national newspapers, magazines and websites. Specialising in savings, investments, pensions and property. Read more

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