Debt management plans: how they work, the fees and what they do not do

A debt management plan is an informal agreement to repay unsecured debts in affordable monthly instalments. This guide explains how it works, what it does not do, the FCA fee rules and where to find free help. Checked October 2026.

What a debt management plan is and how it works

A debt management plan, usually shortened to DMP, is an informal arrangement between you and the companies you owe money to. You make one monthly payment, set at what your budget can afford after essential costs, and a provider shares that money between your creditors, the firms or organisations you owe. GOV.UK describes it as an agreement to pay off all your debts, which you can arrange yourself or through a firm. Citizens Advice stresses that it is not legally binding, so there is no minimum period and you can cancel at any time. In practice a provider collects your financial details, works out a budget, contacts your creditors and proposes payments, so you do not have to speak to each one yourself.

Which debts it can and cannot cover

A DMP covers unsecured debts, which are debts not guaranteed against your home or another asset. Citizens Advice lists non-priority debts such as credit cards, store cards, bank loans, student loans, water charges and benefit overpayments. Priority debts, where the consequences of not paying are more serious, usually cannot go into a DMP. These include mortgage or rent arrears, gas and electricity arrears, council tax, and income tax or VAT arrears, and they need a different solution. Joint debts can be included, and a joint DMP is an option where both partners are struggling. Because a DMP only works on non-priority debts, many people deal with priority arrears first, with free advice, before setting a plan up.

What a plan does not guarantee

The most important point is that a DMP does not write anything off. Northern Ireland's nidirect puts it plainly: starting one means making a new promise to repay your debts in full. Creditors do not have to accept the plan, and GOV.UK says they can still take recovery action even if you keep up your payments. They may agree to freeze interest and charges, but they are not required to, so the balance may fall more slowly than you expect. Citizens Advice and StepChange both note that reduced payments can be recorded on your credit file, and that the plan itself may appear there and make new credit harder to get while it runs and for some time afterwards. The pages give no fixed period for how long.

A worked example

Here is an illustrative example, not a real case. Suppose someone owes £3,000 on a credit card, £2,000 on a personal loan and £1,000 on an overdraft, which is £6,000 in total, and their budget leaves £200 a month. Shares are usually in proportion to what is owed: the card is 3,000 / 6,000 = 50%, so £100; the loan is 2,000 / 6,000 = 33.3%, so about £66.67; the overdraft is 1,000 / 6,000 = 16.7%, so about £33.33. These add up to £200. If all interest were frozen and no fee were charged, £6,000 / £200 = 30 months. If interest carried on, or a fee took part of each payment, it would take longer. For instance, a £60 fee from a £200 payment would leave £140 for creditors, and £6,000 / £140 is about 43 months.

Fees and what providers must tell you

Some providers are free, such as debt charities, and others charge. Anyone offering debt management services must be authorised by the Financial Conduct Authority (FCA), and you can check the Financial Services Register. Citizens Advice says a fee-charging provider must state the amount before you agree, or explain how it will be worked out, and explain how fees affect the length and total cost of the plan. It must also tell you how to get free debt advice and give written warnings that creditors may still take action. The FCA Handbook (CONC 8.7.3G) says a firm is likely to undermine your ability to repay if its fees could take more than half of the money you send in any one month, and expects the share going to fees to fall after the initial fee has been paid or after six months, whichever is sooner.

How it relates to other debt help

A DMP is only one of several routes. Other options include a Debt Relief Order, an Individual Voluntary Arrangement, bankruptcy, or the 60-day Breathing Space scheme in England and Wales, which pauses most enforcement action and freezes most interest and charges but is not a payment holiday. GOV.UK guidance says a debt adviser can take someone out of Breathing Space if a debt solution covers all the debts in it. Rules differ across the UK: nidirect covers Northern Ireland, and Scotland has its own debt solutions, so it can be worth confirming which apply where you live. GOV.UK suggests a DMP suits people who can afford only a small payment each month, and nidirect says you need money left over after essential spending, so people with little or nothing spare may be directed to other options.

Common mistakes and where to get free help

• Paying a fee without asking what it is, who receives it and how long it lasts
• Assuming that interest has stopped when creditors have not agreed to freeze it
• Leaving priority debts out of the budget, which a DMP does not protect
• Missing payments without telling the provider, since the plan can be cancelled

Free, impartial help is available from MoneyHelper, StepChange and Citizens Advice, and Advice NI in Northern Ireland. Many people speak to one of these before choosing any provider, because they can discuss every option rather than just one. If a regulated firm has treated you unfairly, you can complain to it and, if unresolved, ask the Financial Ombudsman Service. This guide is general information, not advice, and does not recommend any provider. If you are struggling, you are not alone, and talking early can widen the choices available.

Check before you act

Rules, fees and creditor practices change, so confirm the details on the official pages linked below and with a free adviser before making any decision about your own debts.

Sources

• GOV.UK, Debt management plans
• FCA Handbook, CONC 8.7 Debt management fees
• GOV.UK, Debt respite scheme (Breathing Space) guidance
• nidirect, Debt management plans
• Citizens Advice, Debt management plans: what you need to know
• Citizens Advice, Rules debt management plan providers must follow
• StepChange, How debt management plans work