Do I Qualify For a Debt Management Plan?

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Debt management plans are one of the most popular solutions to resolve personal debt problems. We consider what criteria you need to meet to qualify for a debt management plan.

If you have unsecured debt that you cannot repay, one of the options you can consider is a debt management plan (DMP).

A DMP enables you to reduce the amount you pay towards your unsecured debts each month so that your payments fit within a budget that you can afford.

This gives a considerable advantage. However a debt management plan is not for everyone. There are some important criteria that you need to consider.

Not all debts can be included

You can only included unsecured debts in a debt management plan.

Unsecured debts include bank loans and overdrafts, credit and store cards, catalogue debts, doorstep and payday loans. If you have these types of debts they can be included.

You cannot include secured debts such as mortgage or secured loan debts or a vehicle HP. If you do not continue to make these payments, you risk the home or car being repossessed.

In addition although they are unsecured, you cannot include tax debts in a debt management plan.

If you owe money to HMRC in the form of income tax or VAT particularly as a sole trader, a DMP will not be for you and you should consider an individual voluntary arrangement which can include HMRC debt (IVA).

A sensible payment is required

There are no rules governing the amount you have to pay into a debt management plan each month.

The amount you pay is based on your disposable income. This is your income less the amount you need to spend on reasonable living expenses each month.

However, because you will still be responsible for paying your entire debt back if you use a DMP. Unless you can pay a reasonable amount each month, repaying your debt could take an extremely long time.

For this reason it is only sensible to use a debt management plan if you can repay your debt within a five year period.

If not, you should consider other debt management options or view the DMP as a temporary measure to give you a breathing space until your financial situation improves.

There are no other real qualification criteria for a debt management plan. However there are some things which you should consider when deciding if a DMP is suitable for you.

Legal protection & interest charges

Because a debt management plan is ultimately the result of a private agreement between you and your creditors it gives you no legal protection from them. This means that they are still able to take legal action against you to collect their debt if they wish.

Legal action could take the form of applying for county court judgment against you or applying for a charging order against your property if you are a home owner.

Your creditors also have no obligation to stop adding further interest or charges to your accounts. As such, although you are paying money towards your debts each month, the balances will not drop as quickly as you expect and in some cases may even increase.

Your creditors may decide to suspend these charges on the basis that you maintain your DMP payments. However there is no guarantee of this and from the time you decided to start a DMP, some interest will undoubtedly have been added.

If you want to ensure that legal action and further interest and charges are stopped and that you know exactly when your debts will be settled in full, an individual voluntary arrangement may be a better solution for you.

Consider all your options

Because a debt management plan is not a formal legally binding solution, most people will qualify to start one.

However, this does not mean that everyone with debt problems should us a DMP.

If your debts are secured, you have HMRC debt or debts that you simply cannot afford to pay in a sensible period of time based on your disposable income a DMP may well not be the right option.

Before deciding to start a DMP you should therefore also carefully consider the other solutions.

You can then make a sensible informed choice about the solution that is best suited to deal with your particular problem.

What to do next? If you are struggling with debt, visit

Our experts are available to speak to you about your debt problem and offer advice and debt solutions.


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