Debt Management Plan UK: How It Works, What It Costs and When It Goes Wrong
Seven minimum payments fall due this month and your money covers two of them. A debt management plan (DMP) is how you stop choosing which creditors to pay.
Straight answer: Short answer: a DMP means you pay one affordable amount each month and a provider shares it between your creditors. It is informal, so creditors do not have to freeze interest or stop chasing you, and it does not stop court action. StepChange runs DMPs for free. Some firms charge up to £700 to set one up and take up to 49% of each payment. Get free advice first: StepChange 0800 138 1111, National Debtline 0808 808 4000.
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Work out what you can afford to payThe number that decides everything: interest
Take £8,400 on credit cards at 20% APR (the yearly interest rate). Interest alone is about £140 a month. So if all you can pay is £140, the balance never moves. I ran the maths for three payments, once with interest frozen and once with it still running.
| Monthly payment | Interest frozen | Interest still running at 20% |
|---|---|---|
| £140 | 60 months, £0 interest | Never clears. £140 is all interest |
| £200 | 42 months, £0 interest | 73 months, £6,168 interest |
| £250 | 34 months, £0 interest | 50 months, £4,018 interest |
At £200 a month, a frozen interest rate saves 31 months and £6,168. That is the real prize of a DMP, and the reason it is the first thing to ask for. Creditors do not have to agree, though. Many do. Some do not. Ask every one of them, in writing, and keep the replies.
Check where you stand on a single card with the Minimum Payment Trap Calculator.
What a DMP covers
It covers unsecured debts: credit cards, loans, overdrafts, store cards, buy now pay later. It does not cover a mortgage or hire purchase. Priority debts, where the consequences are worst (rent, council tax, gas and electricity, court fines), are paid separately and first. National Debtline says you need to be able to pay at least £5 to each debt every month, and that if the plan would take ten years or more it is worth looking at other options.
Free or paid: the cost gap
StepChange charges nothing. Fee-charging firms may charge a set-up fee of up to £700 and take up to 49% of each monthly payment, according to StepChange. Its worked example is £15,400 paid at £168 a month: about 7 years 8 months with a free provider, against 10 years 6 months and up to £6,700 extra with a fee-charging one. My own check: £15,400 ÷ £168 is 92 months, which matches. Check any firm is authorised by the FCA on the Financial Services Register before you give it your bank details.
Rule of thumb
If a company calls you first, mentions a fee before it asks about your income and expenditure, or says it can write debts off, hang up and ring a free charity.
Doing it yourself, or through a charity
You can set up and run a DMP yourself, but then you deal with every creditor yourself. The steps are the same either way.
- Write your budget. Income, essential bills, then what is left. Be honest and keep it lean. Creditors compare it against a standard spending guide.
- List every debt with the balance, minimum payment and whether it is priority or not.
- Split the money fairly. Divide your payment in proportion to what you owe each creditor, not equally.
- Write to each creditor with your budget and an offer. Use the letter below.
- Pay on time, every month. Review the plan at least once a year or when your income changes.
Copy this letter if you set up a DMP yourself
Dear [creditor],
Account number: [number]
I am struggling to keep up with my payments and am putting a repayment plan in place. My income and expenditure is attached. After essential bills I can afford £[amount] a month towards all my debts, which works out at £[your share] a month to you, based on what I owe each creditor.
I am asking you to accept this, to freeze interest and charges, and to stop collection activity while I pay. I will review the offer every [6/12] months and send updated figures.
Please confirm in writing. If you cannot accept, please tell me why.
Yours sincerely, [name]
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Not sure a DMP is your best route?The risks, plainly
- No legal protection. Creditors can still ask for the full debt and take recovery action while you pay. Once a DMP is agreed they usually stop, but nothing makes them.
- Credit file. Reduced payments are recorded as partial payments, and some creditors add a DMP marker. Expect borrowing to be hard until the plan ends.
- Letters keep coming. National Debtline says this does not mean the plan has a problem.
- New credit. StepChange warns that taking new credit during a plan may break its terms.
If a collector is pushing, know your rights. If you simply stop paying, see what happens if you stop paying a debt.
DMP or IVA: the quick comparison
| DMP | IVA | |
|---|---|---|
| Legal status | Informal agreement | Legal contract with an insolvency practitioner |
| Length | No fixed end. Until you repay in full | Usually 5 or 6 years |
| Debt written off | No. You aim to repay everything | Yes. The remainder is usually written off at the end |
| Interest frozen | Often, not guaranteed | Yes, creditors included must freeze it |
| Stops creditor action | Not by law | Yes for included creditors |
| Flexibility | Easy to change | Limited. Can fail if you miss payments |
| Cost | Free with a charity | Fees come out of your payments |
You can move from a DMP to an IVA if your situation worsens, but not the other way round while the IVA runs. Read IVA pros and cons, how to write off debt or use the bankruptcy and DRO checker if your debts are too big to repay in full. Detail on bankruptcy is in how bankruptcy works.
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Build your repayment plan todayQuestions people ask
Will creditors freeze my interest on a DMP?
Not by law. Many do, and the freeze can be lifted later. Ask each creditor in writing and keep the answer.
Does a DMP stop bailiffs, a CCJ or court action?
No. It is informal, so a creditor can still get a county court judgment. If you need a legal pause, look at breathing space.
Can I put my mortgage or car finance in a DMP?
No. Secured debts and hire purchase sit outside the plan. You can add arrears on rent, mortgage or utilities, but ongoing payments go straight to the creditor.
What if one creditor says no?
They cannot send your payments back. The money is still credited to the account, but they may take further action, so ask them to speak to StepChange.
Can I stop the plan if life changes?
Yes. It is not a contract. You can cancel, but then you deal with creditors yourself and they may add interest and charges again.
Will a DMP wreck my credit file?
It marks the file, because payments are recorded as reduced. It is better than missed payments and defaults, and it ends once you clear the debt.
How long does a DMP last?
Until you have repaid everything. In the £8,400 example above it is 42 months at £200 with interest frozen, 73 months if interest keeps running.
Disclaimer: DebtShift is an educational platform operated by H Ali Logistics Ltd, which is not authorised or regulated by the Financial Conduct Authority (FCA). This article is general education, not financial or legal advice. For free, impartial debt advice, contact StepChange on 0800 138 1111 or National Debtline on 0808 808 4000.
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