Debt Management Plans

Personal debt management plans are NOT legally binding debt solutions!


1:    A debt management plan is an informal agreement between a debtor (possibly you) and a creditor        (i.e. Credit Card Company X) to repay an outstanding amount over a period of time that is        affordable to the debtor.

2:    An individual can set up their own debt management plan, this is known as (self debt management or dealing directly with creditors). You can select the services a fee charging        debt management company such as Lewis Alexander, or a free to client debt management service such as National Debtline or visit / contact your local Citizens Advice Bureau.

3:    Whilst contributing to a DMP or debt management plan, the debtor would usually make one, affordable weekly or monthly payment into the debt management plan and the operator         of the plan would distribute the debtors funds to the respective creditors on what is called a pro rata basis.

4:    The amount each creditor receives is based upon the debtors disposable income. The disposable income is worked out by deducting the debtors monthly expenditure from the        debtors monthly income. If the debtor has a positive disposable income (meaning more than zero to spare each month) then the creditor with the largest percentage of the debtors        total debt receives the largest share of the debtors monthly disposable income.

5:    You can work out how long it will take to clear outstanding credit utilising a debt management plan by dividing the total debt by the total monthly disposable income.

6:    It is not advised to undertake a debt management plan for longer than 120 months or ten years.



The Pros and Cons of Debt Management Plans in England, Wales, Scotland and N. Ireland;


The Advantages of a Debt Management Plan

  • Offers one affordable monthly or weekly repayment.
  • Combines all unsecured credit agreements into one consolidated new payment.
  • Possibly freeze interest and charges being applied but NOT guaranteed.
  • Flexible repayments should you suffer another change in circumstance.
  • Can assist in helping to avoid Bankruptcy or an IVA.
  • Avoid having to take out further borrowings to clear financial problems.
  • Still possible even if you have been refused a Debt Consolidation Loan.

  • The Disadvantages of Debt Management Plans

  • Creditors do not have to agree to freeze interest and charges being applied to the debtors accounts with a debt management plan, unlike with an IVA.
  • The period of time to repay the total outstanding credit may increase, the debtors credit rating could be affected due to defaults being recorded on their credit file.
  • No guarantee that creditors will not take any further legal court action such as a CCJ.
  • Credit reference agencies keep account history information such as late or missed payments and can be help on a personal credit record for up to 6 years.
  • If token payments are made, default notices can still be recorded.
  • A debt management plan is not legally binding between creditors / debtors.
  • The information on an individuals credit file can influence lenders decisions and in turn can affect a consumer when trying to obtain other credit agreements such as mobile phone     contracts or mortgages.
  • Information held on a credit file can affect a consumer in other ways and can be requested by a future employer.