Debt Management Plans: Here’s What You Need to Know

A debt management plan is an informal agreement between you and your lenders that may help you clear your unsecured debts if you’re unable to pay them. Read on to find out how they work and if a repayment plan could be the right solution for you.

Ruth Jackson-Kirby, Brean Horne Last updated on 18 May 2022.
Debt Management Plans: Here’s What You Need to Know

A debt management plan can help you pay off unsecured debt at a more manageable rate if you’re struggling to pay off your debts. Read on to find out how debt management plans work and if they could help you clear your debts.

What is a debt management plan?

A debt management plan ( DMP) is an informal agreement between you and your lenders that allows you to repay them at a more affordable rate. You’ll make one monthly payment to the debt management plan provider, which is then split between your lenders.

Debt management plans are not legally binding, which means that you can cancel them at any time.

What types of debt can I include in a debt management plan?

Debt management plans can only be used to clear non-priority unsecured debts, such as credit cards, overdrafts, unsecured loans and payday loans.

They can’t be used to manage your priority debts, such as mortgage repayments, rent, car finance, and council tax. Priority debts like these cannot be included in a debt management plan as the consequences of not repaying them can be more serious than non-priority debts.

» MORE: What are the different types of debt and how do they work?

Who can get a debt management plan?

Debt management plans are usually designed to help borrowers who:

  • don’t have enough money in their budget to pay towards unsecured debt after managing their monthly expenses and priority debt repayments
  • can commit to paying off their plan for a set period suggested by the debt management provider
  • don’t have enough money to repay their debt within six months

How does a debt management plan work?

A debt management plan consolidates your unsecured debt agreements so that you only have to make one payment each month. This payment is split between each of your lenders to help pay off your debts.

A debt management plan provider is responsible for negotiating the terms of your agreement with your lenders. It will also collect your monthly payments and split the cost among your creditors.

Can I get a free debt management plan?

Some debt management plan providers, such as StepChange and PayPlan, offer free debt management plans. But many firms charge fees such as administrative costs. Although these can vary between providers, they must be capped at 50% of your total payment.

It’s important to check that a debt management plan provider is authorised by the Financial Conduct Authority (FCA) before contacting them or sharing any personal details.

The FCA register offers a simple way to check whether a firm is authorised to offer the financial services it advertises. If a debt management provider isn’t authorised by the FCA, it may be a fraudulent company.

So if you come across an unauthorised firm, reporting it to the FCA and Action Fraud can help prevent it from operating, and avoid people falling victim to potential scams.

What types of debt can be included in a debt management plan?

A debt management plan can be used to pay off most types of non-priority, unsecured debt. Examples include:

  • unsecured personal loans
  • payday loans

Secured debt, such as a mortgage or some types of car finance, can’t be paid off using a debt management plan.. Similarly, high priority debts such as council tax can’t be repaid using a DMP. These debts are referred to as priority debts and cannot be included in a debt management plan as non-payment of these can have more serious consequences than non-payment of other types of debt.

» MORE: What’s the difference between secured and unsecured loans?

How long does a debt management plan last?

Typically debt management plans last around five to 10 years. But this can vary significantly depending on how much debt you have and how much you can afford to pay off each month.

You can estimate roughly how long a debt management plan could last using four simple steps:

  1. Calculate your total unsecured debt.
  2. Work out how much you can afford to pay off each month.
  3. Divide your total debt by the monthly payments.
  4. Divide the result by 12.

The table below shows examples of how to use this method. They do not account for additional fees or charges that a debt management plan provider may add.

Borrower 1

Borrower 2

Total unsecured debt



How much can they afford to pay?



Total debt divided by monthly payments

60 months

120 months

Estimated length of debt management plan

5 years

10 years

» MORE: How to manage debt

Advantages of a debt management plan

Debt management plans could offer several advantages such as:

  • Improve your finances: Debt management plans could help you clear your unsecured debt and improve your finances in the long term.
  • Easier to keep track of your debts: Keeping track of your repayments could be much simpler with a debt management plan because you’ll only have to make one payment each month, which is split between your creditors.
  • Managed by a company: Your debt management plan provider will liaise with lenders on your behalf, taking the stress out of managing multiple negotiations.
  • Flexibility to manage your debts: You may be able to increase or decrease your monthly repayments depending on your financial circumstances.

Risks of a debt management plan

Some of the risks to be aware of when considering a debt management plan include:

  • Higher interest: Some creditors may charge higher interest on debts because you’re repaying them over a longer period.
  • Lowers credit score: A debt management plan may lower your credit score but it can help you clear your debt, which will improve your credit history in the long run.
  • Fees: Some providers charge fees for a debt management plan, so it’s important to check before agreeing to a firm’s terms and conditions.
  • Priority debts: Debt management plans can’t be used to pay off your priority debts, such as mortgage payments or rent arrears.
  • You may get a default: Some creditors may still record a default on your credit report even if they agree to a debt management plan because you are making reduced payments towards your debts. Defaults will stay on your credit record for six years and may affect your chances of successfully borrowing in the future.
  • Informal agreement: Creditors have no obligation to agree to a debt management plan and you may need to negotiate with them directly to find a repayment solution.

What happens if I miss a payment on my debt management plan?

Missing a payment on your debt management plan could put your agreement at risk. And, repeatedly missing payments could result in your plan being cancelled.

It’s important to let your debt management plan provider know as soon as possible if you think you’re going to miss a payment. They will inform your lenders on your behalf and may be able to negotiate a solution with them too.

» MORE: What happens if I can’t afford my loan repayment?

Will a debt management plan affect my credit score?

A debt management plan may negatively affect your credit score initially. That’s because some lenders may also still record your payments as ‘missing’ because you’re paying smaller amounts. Missing payments stay on your credit file for six years and may make it harder for you to borrow in the future.

Having a debt management plan isn’t the end of the world and you can improve your credit score again over time. Simple steps such as repaying your debt management plan on time demonstrate that you are paying off what you owe and are managing your money well.

Will a debt management plan affect my financial ties?

If you have a joint unsecured debt with another person, such as a joint loan, each person is liable for repaying the debt. That means if one person sets up a debt management plan in their name, lenders may still chase the other for the full repayment. This is referred to as joint and several liability.

It’s worth considering a joint debt management plan if both you and the other person liable for your unsecured debts are struggling to pay it off. Both of you will have equal responsibility for the monthly repayments, even if you have different levels of income.

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

It’s unlikely that you’ll be able to borrow money until you finish paying off your debt management plan. If a new lender does agree to let you borrow money, it’s important to make sure that you can afford the repayments before taking on the additional debt.

» MORE: What is credit?

Can I get a mortgage with a debt management plan?

It may be possible to get a mortgage with a debt management plan but it might be tricky. That’s because a debt management plan typically lowers your credit score.

However, some lenders offer bad credit mortgages to allow buyers with a poor credit history to purchase a property. These types of mortgages usually require a higher deposit. You’ll also have to pay higher interest rates due to the increased risk that you might not be able to repay your mortgage.

Speaking to an independent mortgage broker could help find specialist lenders that you’re eligible for.

» COMPARE: Bad credit mortgages

Is a debt management plan right for me?

A debt management plan might be an option if you already have your priority debt under control and need help keeping up with your non-priority debt, such as credit cards and loans.

DMPs are also worth considering if you would like to simplify your repayment process and have someone else negotiate with lenders on your behalf.

An alternative solution may be arranging an individual voluntary agreement (IVA). IVAs can also help you pay off your debts by combining them into one monthly payment.

However, unlike debt management plans, an IVA is legally binding and must be arranged by a qualified lawyer or accountant. They usually cost around £5,000 or more. IVAs can only be used for debt that is over £10,000.

If you’re unsure about the best solution to pay off your debt, speaking to an independent debt help organisation can help. They’ll offer you tailored advice based on your financial circumstances to find the best option for paying off your debt.

» MORE: How can debt charities help you with repayments?

How to apply for a debt management plan

If a debt plan sounds like the right solution for your needs you can take the following steps to apply for one:

  • Step 1: Make sure that your secured debts are under control.
  • Step 2: Create a budget to see if you have enough income to commit to your debt management plan monthly repayments.
  • Step 3: Choose a debt management plan provider.
  • Step 4: Check the details of your contract carefully before signing up.
About the authors:

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

Brean is a personal finance writer at NerdWallet. She covers a range of financial topics and has written for consumer titles including Which?, Moneywise and The Motley Fool. Read more

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