Many debt management plan (DMP) providers charge a fee for their services but some don't. It's important to remember that if you don't want to pay a fee, you don't have to. You just need to choose a free provider.
This page explains how you can find a free DMP provider and what to think about if you do want to choose one that charges a fee.
Why do some DMP providers charge a fee?
A DMP provider works on your behalf to work out what you can afford to pay, negotiate payments with creditors, and distribute the payments to your creditors each month. Clearly, any organisation or company providing a professional service like this will have costs it needs to cover.
Commercial DMP providers cover these costs by charging fees to their customers. Meanwhile, the free providers, who are normally charities, are paid directly by the banks and credit card companies themselves, meaning they don't need to pass fees on to their customers.
Do you get better service if you pay a fee?
Many fee-charging DMP providers will argue that you'll get a better service by paying a fee. They may also say that because they're being paid by you, rather than by the creditors themselves, they're working in your interests rather than those of your creditors. It's up to you to judge for yourself what you think about these arguments. However, there is no need for you to pay a fee if you don't want to.
Finding a free DMP provider
There are three main providers of free DMPs:
National Debtline
National Debtline is a national telephone helpline which gives free advice to people with debt problems. It will give you advice and send you a self-help pack. If it's appropriate, the adviser can refer you to a free DMP.
StepChange
StepChange is a charitable organisation funded by the credit industry to provide free credit counselling to people in the UK. It offers an initial interview by telephone or in person and then reviews your debt history and provides a recommendation. This can include a debt management plan, which is administered by StepChange.
Payplan
Payplan is a company which provides a free debt management service to people in the UK. It is independent and is funded by the credit industry. It will assess your financial position, suggest a repayment plan and approach the creditors with it.
If you decide you want a free DMP, you might want to contact more than one of the free providers so you can compare their service and decide which one is right for you.
If you decide to choose a fee-charging provider
If you decide to set up your DMP with a provider who charges a fee, there are a few things to watch out for:
your DMP is likely to last longer than if you didn’t pay a fee, as there will be less money from each of your monthly payments going to your creditors
the fees may include a set-up fee, deposit or an ongoing fee that is deducted from your monthly payments, so make sure you're happy with the costs before you sign
however, no more than 50% of the money you pay to a DMP provider should be taken to pay the provider's fees - at least 50% should be passed on to your creditors, and this should increase after the first six months
the costs of administering your DMP should be spread evenly over the DMP
if you cancel your DMP, you might not get a refund of any fees or charges, or you might have to pay a cancellation fee, so check the agreement carefully.
Make sure you do your research carefully and choose the provider who offers the best service for your needs.
Next steps
More information
National Debtline
Tricorn House
51-53 Hagley Road
Edgbaston
Birmingham
B16 8TP
Freephone: 0808 808 4000 (Mon-Fri 9.00am-9.00pm; Sat 9.30am-1.00pm; 24-hour voicemail to request an information pack)
Fax: 0121 410 6230
Website: www.nationaldebtline.org
StepChange Debt Charity
Wade House
Merrion Centre
Leeds
LS2 8NG
Freephone: 0800 138 1111 (Monday to Friday from 8.00am to 8.00pm)
Website: www.stepchange.org
Payplan
Kempton House
Dysart Road
Grantham
NG31 7LE
Freephone: 0808 278 6944 (Monday to Friday 8am to 8pm, Saturday 9am to 3pm)
Email: available through a form on the website
Website: www.payplan.com
FAQs
Many debt management plan (DMP) providers charge a fee for their services but some don't. It's important to remember that if you don't want to pay a fee, you don't have to. You just need to choose a free provider.
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.
What are the downsides of DMP? ›
Getting a DMP will usually lower your credit score. This is because you'll be paying less than the originally agreed amount, which will be shown on your credit report. Reduced payments show you're having difficulty repaying what you owe, so lenders may see you as high-risk.
Does a DMP require monthly payments? ›
If you decide to go ahead with a debt management plan, your credit counselor will contact your creditors to negotiate a payment amount that you can comfortably afford each month. Under the new payment plan, you'll make one monthly payment to the plan's administrator who then distributes the money to your creditors.
How much does a DMP cost? ›
Fees for DMPs vary by state and agency. Enrollment fees and monthly fees separately range from $0 to $75 in most cases. Other forms of debt relief, such as debt settlement companies, can cost thousands of dollars if they're successful, and their results aren't guaranteed.
Is a DMP worth it? ›
A DMP may be a good option if the following apply to you: you can afford your living costs and have a way to deal with any priority debts, but you're struggling to keep up with your credit cards and loans. you'd like someone to deal with your creditors for you. making one set monthly payment will help you to budget.
Does a DMP hurt 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. When you agree to close all of your credit accounts, your credit history stops.
Can you keep a credit card on a debt management plan? ›
Any credit card that is included in your debt management plan must be closed. This ensures that you are not taking on more debt while you pay back your current balance. It also ensures that you are using the lower interest rate and debt management plan perks from for their intended purpose.
Do you lose your credit cards after debt consolidation? ›
Debt consolidation doesn't automatically close your credit card accounts. But if keeping an account open tempts you to rack up more charges, then it might be a good idea to close the account. However, you might damage your credit scores by closing the account.
Does a DMP write off debt? ›
Unlike some debt solutions, a DMP sees you repay your debt in full. Your creditors may also agree to freeze interest and fees on the debts included, but this is not guaranteed. If you opt to go for a private debt management company, they will charge you a fee for negotiating and administering your DMP.
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.
Do most creditors accept DMP? ›
It's up to each creditor to decide whether to accept the offered monthly payment. They normally do! But if they say it's too low, don't offer them more. Talk to your DMP firm if you are very worried, but this usually gets sorted pretty quickly in the first 2 months.
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.
Can I still use a credit card on a DMP? ›
You're required to close your accounts. Any credit card that is included in your DMP is required to be closed. Here's how it works — the creditor, which is typically a bank or other financial institution, works with MMI to create a DMP, which usually includes reduced interest rates on your credit card accounts.
What is one disadvantage of using a debt management plan? ›
The cons of Debt Management Plans
This can slightly lower your credit score, because closing multiple accounts at the same time affects the length of your credit history. However, that score will increase with on-time payments and because the debt is paid down faster on the DMP.
What are debt management fees? ›
Debt settlement companies: Typically 14% to 30% of your debt. Credit counseling agencies: Certain services are free, but a debt management plan typically costs from $0 to $35 to set up, with a monthly fee ranging from $0 to $75.
Do debt relief programs charge a fee? ›
Key takeaways
Debt relief can take three forms: debt settlement, consolidation and management. Working with a debt management company can result in less debt or a faster payoff — but there are often hefty fees, often up to 25 percent of the debt enrolled, attached to the services.
Can you get out of a debt management program? ›
A debt management plan (DMP) isn't legally binding, so you can cancel it if you feel it isn't working for you.
