Struggling with debt? A Debt Management Plan (DMP) is one of the most common debt solutions, offering a flexible way to regain control of your finances. Before signing up, it’s important to understand your options and get professional debt advice.
But there are some important things you should think about before signing up for a DMP. If it’s your first time getting debt advice, or you’re worried about the risks of committing to a debt solution, in this blog, we’ve answered the question: what should I consider before signing up for a debt management plan?
What is a Debt Management Plan (DMP)?
A Debt Management Plan, or DMP for short, is a flexible arrangement that involves making one regular payment to a debt management company, who will then distribute the money to your creditors for you. The end goal is to repay all of your unsecured debt(s). Here’s how it works:
- Working out a set budget for you: One of our friendly and professional debt advisors will sit down with you and work out a set budget to see how much you can afford to pay off towards your debt(s) each month. This budget will include all of your priority debts (e.g. mortgage payments, rent, household bills, etc.) and any money leftover (also known as your ‘disposable income’) will be used to pay off the money you owe to your creditors.
- Contacting your creditors & managing payments on your behalf: Your debt advisor would also manage all contact with your creditors to try and agree on a reduced payment for each debt on your behalf, as well as handle the payments each time.
Not everyone is eligible for a DMP, so getting tailored debt advice first is essential in order to find the right solution for your finances.
Key Considerations to Make Before Signing Up for a DMP
A recent survey conducted by the FCA (Financial Conduct Authority) found that 47% of those who sought help from lenders or charities in the 12 months leading up to January 2024 reported being in a better position.
While a debt management plan could be the first step to reducing your financial hardship, there are some important considerations to make before signing up for one, including:
- A DMP is not legally binding: DMPs are informal (not on the insolvency register), which means they can be cancelled anytime. But this also means your creditors can refuse the plan or continue chasing you for the balance.
- The impact on your credit score: Being on a DMP can lower your credit score, making it harder to get loans and/or credit cards in the future. We would recommend that you don’t take out any further credit while on a DMP.
- Interest & charges may not always be ‘frozen’: Some creditors may agree to stop adding interest or late fees if you keep up with your payments. But if you’re struggling to follow your plan, some creditors may continue to add these on, which can increase the total amount you owe.
- Creditors may continue to contact you: While on a DMP, our professional debt advisors will handle all creditor contact for you. But you will still get official notices required by law, and some creditors may contact you for payment if they do not agree to the DMP.
Who is a DMP Suitable for?
A Debt Management Plan is usually best-suited to people who are struggling to keep up with their unsecured debts, but still have income to make regular payments.
Whereas, those with large priority debts or no regular income may need a different solution, such as an Individual Voluntary Arrangement (IVA), Debt Relief Order (DRO) or Bankruptcy.
Get started with our free*, online debt advice tool today to check if you qualify.
How Do I Decide if a DMP is Right for Me?
The first thing you should do is contact a debt solution provider or debt charity to get tailored advice for your individual financial situation. If a DMP is recommended to you, here are some key things to consider that might help you decide whether you want to go ahead:
- Review your income & spending: Make sure your income and spending will allow you to make regular payments towards your DMP. Please note: This is also something your debt advisor will assess before recommending this solution to you.
- Think about the long-term commitment: Some debt management plans can take a long time to clear because payments are based on what you can afford. But a DMP is informal and flexible, so you can adjust the plan if your financial situation changes, or cancel at any time. Remember: Your creditors do not have to agree to changes.
Why Choose Angel Advance for Debt Management Plans?
- We’ve helped over 71,000 people deal with debt: Our friendly and professional debt advisors have helped over 71,000 people deal with debt.
- One monthly payment: If you sign up for a debt management plan with Angel Advance, you will just make one monthly payment to us, instead of paying all of your creditors individually.
- Transparent fees with no hidden costs: Angel Advance’s debt management plan fees are completely transparent, with £55 as the monthly fee for the first 6 months, which then reduces to £39.50 after those 6 months. There are no other fees for running your debt management plan.
- Free, confidential debt advice: If all you need is debt advice, we offer free*, confidential advice over the phone, via email, WhatsApp or web chat. This won’t affect your credit score.
- Regulated by the Financial Conduct Authority (FCA): Angel Advance is authorised and regulated by the Financial Conduct Authority (FCA), meaning we deliver approved products and services, and prioritise customer protection above anything else.
Get Free*, Confidential Debt Advice
If you’re struggling to find the best ways to pay off your debt, please contact Angel Advance to receive free*, confidential debt advice today.
You don’t have to talk to us on the phone if you don’t want to; you can use our online debt advice tool any time, day or night. Free and easy-to-use, our handy tool tells you which debt solutions are available to you on-screen, instantly – all without the need for a phone call.
*Our advice is free, but if you sign up for a debt solution, a fee will apply for some solutions.
What to Consider Before Signing Up for a DMP: FAQs
You can include non-priority debts in a Debt Management Plan. This includes:
- Credit card debt
- Personal loans
- Store cards
- Overdrafts
- Catalogue debt
- Buy Now Pay Later (BNPL)
Here is an example of the cost of a typical Angel Advance debt management plan for someone who has 6 creditors to pay over a plan length of 60 months:
- Non-priority debt: £8,600
- Monthly payment: £185
- Monthly set-up fee (for the first 6 months): £55
- Monthly ongoing management fee (after 6 months): £39.50
- Total amount payable: £11,033
- Total fees payable over the period: £2,433
In this example, all interest and charges have been frozen.
Angel Advance’s monthly debt management plan fee for the first 6 months covers:
- Identity checks & documentation reviews
- Initial creditor contact: Angel Advance debt advisors will notify all of your creditors about your debt management plan.
- Negotiation of monthly repayments: We will negotiate with your creditors to see if we can reduce any of your repayments to them.
- Handling all correspondence you send to us
- Regular updates to let you know how everything is going
- Budget check-ins: Every so often, our debt advisors will check in with you to see if changes to your budget are needed.
After the initial 6 months, our monthly fee covers:
- Ongoing management of creditor contact
- Monthly payments to all of your creditors
- Monthly statements for your account
- Annual review(s) of your budget and debt management plan suitability: If you have more ‘disposable income’ leftover after paying your priority debts, it may be practical to use some of this to pay off more of the debt you owe your creditors.
- Help & support from our customer service team when you need it: If you ever need support in understanding the information you have been given, or the plan you are on, please contact us.
- 24-hour access to your online account
While there are no government-approved debt management plan companies, it’s important to note that they should be regulated by the Financial Conduct Authority (FCA). This ensures they give the correct advice and offer debt solutions that are in your best interest.
There are several sources of free DMPs available to all consumers. For more information, please visit the MoneyHelper website. MoneyHelper is an arms-length organisation that was set up by the government to provide free, trustworthy information and guidance.
