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About debt management plans

A debt management plan is an agreement between you and your creditors (the businesses you owe money to) to make a set monthly payment. The plans are managed by companies known as debt management plan ‘operators’ or ‘providers’, who negotiate with your creditors and manage the payments on your behalf.

Your monthly payment is based on how much you can afford to pay. This payment is then distributed fairly between all your creditors.

Starting a debt management plan means that you are making a new promise to repay your debts in full.

When your debt management plan is being set up, your creditors will sometimes agree to freeze any interest charges. However, they don’t have to agree to this.

And they don’t have to agree to your plan at all. If they don’t, they can also continue to contact you, ask for payment – or even take you to court if they choose.

Debt management plans can only be used to pay ‘unsecured’ debts – money that you owe that hasn’t been guaranteed against your property, for example.

Some companies will charge you a fee for this, while others provide their services for free. Get advice before setting up a plan with a provider. Many organisations offer free and independent advice - see the section below, 'Get free advice about your debt'.

Advantages of debt management plans

Advantages to a debt management plan include:

• making one regular monthly payment allows you better control over your finances
• your creditors may agree to freeze interest and charges on your debt and may stop other action like taking you to court (although they don’t have to)
• peace of mind – in many cases, you will no longer be contacted by your creditors or debt collectors
• if you complete the plan, your unsecured debts will be cleared

Disadvantages of debt management plans

Disadvantages of a debt management plan include:

• your debts must be repaid in full – they will not be written off
• creditors don’t have to enter into a debt management plan and may still contact you asking for immediate repayment
• mortgages and other ‘secured’ debts are not covered by a debt management plan

Can you afford a debt management plan?

You can only enter into a debt management plan if you have some money left over every month once all your essential expenses have been paid.

It’s a good idea to draw up a budget, including your monthly income and all your essential monthly household expenses. For example, your mortgage, rent, utility bills, Council Tax and hire-purchase payments.

If you have a very small amount left over after all these have been paid – or nothing at all – you should consider other ways to manage your debts.

• Debt repayment options - a guide

Choosing your debt management plan provider

When choosing a debt management plan provider, you should make sure that:

• the provider is licensed by the Office of Fair Trading (OFT)
• the provider discusses all the possible options available to you to deal with your debt problem
• you’re told clearly at the start how much it will cost to arrange the plan and who will pay that cost
• you understand what will happen if the provider stops running the plan for you because you’ve missed payments
• you’ve checked with other providers to make sure you’re getting a good deal
  

• Check if a debt management plan provider is licensed by the OFT Opens new window

Check the terms of your plan

Before starting a plan, the operator should make clear to you the terms and conditions, including:

• how much money you’ll be expected to pay each month, and for how long
• the reasons the provider might stop operating the plan for you – for example, if you don’t make the required monthly payments

Get free advice about your debt

Setting up a debt management plan is an important financial commitment. Get advice to make sure it’s the right option for you.

You can get free and independent advice on debt management plans – or any kind of debt problems – from organisations like Citizens Advice and the National Debtline.

• Debt - where to get free help and advice

• Dealing with debt problems - a guide

• National Debtline factsheet on Debt Management Plans Opens new window

Useful contacts

• Money, tax and benefits contacts