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?
- 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
- 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