Debt Management Plans. How To Set Up A DMP. StepChange (2024)

FAQs

Debt Management Plans. How To Set Up A DMP. StepChange? ›

Get debt advice to make sure this is your best option. Most debt management companies charge for DMPs. StepChange offer DMPs for free.

Get debt advice to make sure this is your best option. Most debt management companies charge for DMPs. StepChange offer DMPs for free.

A DMP is an informal agreement between you and your creditors for paying back your debts. You pay back the debt by one set monthly payment, which is divided between your creditors. Most DMPs are managed by a DMP provider who deals with your creditors for you.

The fees charged by for-profit DMP providers vary. They are typically around 17% of your monthly payment. Before you start a DMP with a company that charges you, make sure you: Find out what you are paying for.

Like all debt solutions, a debt management plan is not a one-size-fits-all solution. A DMP may be a good thing for you if: You owe multiple debts. By consolidating these non-priority debts, you deal with a single monthly payment instead of keeping track of multiple due dates.

It can take a few weeks to set up a DMP. It depends on how quickly you can provide the information needed.

"Stepchange helped me alot... every month I used to stress because I knew I would have nothing left over to my name. Now I only give the amount I can really afford to my creditors. BIG THANKS TO STEPCHANGE."

Do most creditors accept DMP? ›

Yes – creditors are under no obligation to accept your DMP. They might do this if they don't want to accept reduced payments or feel you could afford to pay more. If they refuse to negotiate with your DMP provider, it can be worth negotiating with them yourself. Outline what you can afford to pay each month and why.

The accounts you are repaying your DMP through will already be listed on your credit report, and once the DMP is complete the marker will be removed and the accounts themselves will be marked as closed – they will then remain listed for six years from the settled date.

In terms of saving money, a debt avalanche is better because it saves you money in interest by targeting your highest interest debt first. However, some people find the debt snowball method better because it can be more motivating to see a smaller debt paid off more quickly.

"We call this the 'debt fireball method,' and that's where we attack the highest interest rate debt first, the bad debt," Anastasio said. That means putting as much as you can toward credit card debt and high-interest rate personal loans, while still paying the minimum on all other balances.

Your DMP provider will handle the rest, giving you some much-needed breathing space. On average, setting up a debt management plan can take anywhere from a few days to a few weeks, though the precise time scale can vary.

Remember that a DMP won't pay off all your debts. Your priority debts, such as mortgage arrears or court fines, can't go into a DMP. You need to make arrangements to pay these debts first and still need to deal with these creditors yourself.

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.

While debt management plans can be effective tools for repaying your debt, they're not always the best strategy. For example, secured debts and student loans aren't eligible for debt management plans, and credit counseling agencies may cap how much debt you can have to participate.