21 Jan 2019

What is a Debt Management Agreement/Plan (DMA/DMP)?

What is a Debt Management Agreement?

A Debt Management Agreement or Plan is an agreement between you and your creditors to pay all of your debts at a rate that you can afford. It is suitable if you have non-priority debts such as credit cards or overdrafts.

Debt Management Plans are usually used when either:

  • You can only afford to pay creditors a small amount each month.
  • You have debt problems but will be able to make repayments in a few months.

You can arrange a plan with your creditors yourself or through a licensed debt management company for a fee. If you choose this option:

  • You will make regular payments to this company.
  • The company will share the money you pay out between your creditors.

Which debts can I pay off with a DMP?

  • Overdrafts
  • Bank or building society loans
  • Money borrowed from friends or family
  • Personal loans
  • Credit card or store cards

Debts that you cannot pay off with a DMP

  • Court fines
  • Mortgage
  • TV Licence
  • Child support
  • Gas and electricity bills

Advantages of a Debt Management Plan

  • Relief from creditors, as contact from them will significantly reduce once a payment plan has been agreed
  • Your credit score will improve
  • The DMP will reduce the amount you pay towards your debts each month
  • You avoid formal insolvency

Disadvantages of a Debt Management Plan

  • Debt Management plans are not legally binding
  • DMPs can be more expensive than other solutions if you do not agree to freeze interest rates on your debt
  • Debt management plans last considerably longer than other solutions. They could potentially exceed 10 years depending on the amount of debt.
  • Creditors have to agree the terms of the DMP