A debt management plan (DMP) isn't legally binding, so you can cancel it if you feel it isn't working for you. However, you may not get a refund of your fees and you'll need to make sure you have another way of dealing with your debts.
This page explains what to think about before cancelling your DMP and how to go about doing it.
Top tip
When you enter an agreement for a DMP, you should be given information about your right to cancel, an explanation of whether you'll get a refund of any fees, and whether you will be charged a cancellation fee.
If you're not given this information, your DMP provider may be breaking the conditions of its FCA authorisation. You can make a complaint.
Can you cancel a DMP?
A DMP isn't a legally binding agreement. This means that you can cancel it if you want to. There are a number of reasons why you might want to cancel, including:
you're not happy paying a fee each month which means there's less money left to pay your creditors
the interest on your debts hasn't been frozen, so the problem is getting worse
your circ*mstances have changed for the worse and you're struggling to make the payments
you've come in to some money, perhaps through an inheritance or payment protection insurance reclaim, and are in a position to pay off your debts more quickly
you're not happy with your provider.
Before you cancel
Before you cancel your DMP, you need to think carefully about what will happen next. Ask yourself these questions.
How are you going to deal with your debts now?
Before you cancel your DMP you should think about how you're going to deal with your debts afterwards. When you cancel, the provider will tell your creditors, so they might start charging you interest and late payment fees again, as well as expecting you to resume higher payments. You'll also have to deal with your creditors yourself again. Think about how you're going to cope with this.
You should think about other debt solutions that would help you to deal with your debts before you go ahead and cancel your DMP.
Will you get a refund of any fees?
Whether or not you can get a refund of any fees or charges from your DMP will depend on what your agreement with the DMP provider says. Check the terms and conditions carefully to see if you can get a refund of some of your fees.
If you entered the DMP agreement over the phone or on the internet, then it is classed as a distance sale which gives you extra rights. You will have a cooling off period of 30 days. During this time, you can cancel your DMP for any reason and get a refund of any fees you've paid.
Will you have to pay a cancellation fee?
Your provider should have given you information about cancellation fees when you first entered your agreement. These fees should be reasonable.
Are you cancelling because you were misled?
DMP providers have to follow certain rules as a condition of being FCA authorised. These include not misleading you and making sure you have all the information you need to make an informed decision about starting a DMP. If you believe your provider misled you, perhaps by making claims that weren't true or leaving out important information, you can make a complaint as well as cancelling your DMP.
Cancelling your DMP
To cancel your DMP, you need to contact your provider and ask to cancel. They will inform your creditors that the agreement has been cancelled, so you can expect to start dealing with them yourself again.
Next steps
FAQs
To cancel your DMP, you need to contact your provider and ask to cancel. They will inform your creditors that the agreement has been cancelled, so you can expect to start dealing with them yourself again.
What happens if I cancel my debt management plan? ›
Alternative debt solutions available
Cancelling your DMP should never be the first port of call if you're struggling to make repayments. If you choose to do this, it's likely that the companies you owe to will start contacting you and asking you to make repayments directly to them.
Can I cancel a debt consolidation agreement? ›
A debt management plan can help make it easier to pay down credit card debt, often with lower interest rates and monthly payments—and it can keep debt collectors off your back. But if the plan is no longer working for you or you find a different way to accomplish your goal, you can cancel the plan at any time.
What are the negatives of a debt management plan? ›
No new lines of credit: While enrolled in a debt management plan, you typically cannot open any new lines of credit, such as an auto loan or a personal loan. Creditors may not participate: Not all creditors will agree to participate in a debt management plan. Student loans and secured debt is often excluded.
How do I cancel a debt collection contract? ›
You'll likely need to provide the debt collection company with written notice specifying your intent to terminate the contract. What happens if I cancel my debt relief program? If you cancel your debt relief program, you may: Lose any fees you've already paid to the service provider.
Does cancellation of debt hurt your credit score? ›
Once you pay the agreed-upon settlement amount—usually with a lump-sum payment—the remaining debt is canceled. Like bankruptcy, debt settlement can give you some relief amidst financial hardship, but it can have a drastic effect on your credit score.
What are the disadvantages of debt cancellation? ›
Downsides of debt forgiveness
The forgiven debt may show up as settled accounts on the credit report, which means the lender accepted less than the full payment for the loan. A debt settlement also causes your credit score to be lowered for years before and after because of the missed payments and settlement.
What happens if I cancel my debt agreement? ›
Consequences of Cancelling
Your debts will be reinstated. They will start incurring interest again, and it may be backdated. Your credit file will reflect that your Debt Agreement remains “not finalised” until the default is cleared after seven years. Your creditors can apply to make you bankrupt through court.
How to get out of a debt consolidation program? ›
To cancel your DMP, you need to contact your provider and ask to cancel. They will inform your creditors that the agreement has been cancelled, so you can expect to start dealing with them yourself again.
Can I stop paying my DMP after 6 years? ›
A DMP isn't legally binding, so it can be cancelled at any time by either you or your creditors. You may use a DMP provider who'll give you debt advice, deal with creditors, and calculate your payments. Once you start your DMP, you'll only have to make one payment each month to cover all debts included in the plan.
The idea of having a notation on your credit history may initially send up red flags. But while a debt management plan does affect your credit history, it does not have a lasting negative effect on your credit score. When you agree to close all of your credit accounts, your credit history stops.
Why is a DMP bad? ›
your creditors might refuse to co-operate or continue to contact you. the DMP may show on your credit record, making it harder for you to get credit in the future.
How long does a DMP stay on your credit file? ›
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.
What happens if I can't pay my debt management plan? ›
Missing a payment will mean your creditors don't get the monthly payment they're expecting, which may mean they decide to stop co-operating with your DMP. Don't bury your head in the sand, as this will only make the problem worse. Talking to your provider quickly is the only way to get the problem sorted out.
How do I legally cancel my debt? ›
Debts may be canceled in a variety of ways, including through negotiations between the creditor and the debtor, debt relief programs, and personal bankruptcy. Debts forgiven by a creditor are generally considered taxable income.
What happens if you cancel a debt settlement? ›
Money that a debt settlement company asks you to set aside in an “escrow” or “settlement” account belongs to you. You may cancel the account at any time, and the escrow company must refund all of your money minus any fees the settlement company legally earned.
Can you cancel a debt management program? ›
A DMP isn't a legally binding agreement. This means that you can cancel it if you want to. There are a number of reasons why you might want to cancel, including: you're not happy paying a fee each month which means there's less money left to pay your creditors.
Does a DMP affect your credit score? ›
As mentioned above, a DMP will usually lower your credit score. Having a low credit rating doesn't make it impossible to get a mortgage, but it does make it harder. It also makes getting a mortgage more expensive, as lenders are more likely to charge a higher interest rate.
Will debt management ruin my credit? ›
How Does a Debt Management Plan Affect Your Credit? The idea of having a notation on your credit history may initially send up red flags. But while a debt management plan does affect your credit history, it does not have a lasting negative effect on your credit score.
