Debt Management Plan (DMP)

A debt management plan is an informal arrangement with your creditors, this arrangement is managed via a third-party debt management company, or some Charites can offer them free of charge. You would make one affordable payment to the third party which is calculated by completing an income and expenditure review, and this would be distributed amongst your unsecured creditors.

  • Advantages:
    1. One monthly payment rather than numerous

    2. Sometimes creditors will agree to freeze interest and charges

    3. If you use a charity, there will be no fee

  • Disadvantages:
    1. A debt management plan is not normally recommended if it would last 10 years or more

    2. Your creditors are not under an obligation to agree to the arrangement or to freeze interest and charges

    3. Your credit file will be negatively affected for at least 6 years

    4. Certain debts cannot be included within a DMP such as CCJ’s

  • Debt Relief Order (DRO)

    A debt relief order, or DRO as it is sometimes referred to is a formal debt solution it is a form of insolvency and you would pay a one-off fee of £90, your debts would be frozen for 12 months and providing you continue to meet the qualifying criteria the debts will be written off at the end of the 12-month moratorium period. You may qualify for a DRO if you do not have assets worth more than £2,000, owe less than £30,000 are not a homeowner and cannot afford to pay more than £75 per month toward your debts. You can only apply for a DRO through an approved intermediary.

  • Advantages:
    1. A DRO includes most debts

    2. You will not need to make any further payments into the DRO

  • Disadvantages:
    1. There is strict qualifying criteria for a DRO as mentioned above.

    2. A DRO is a form of insolvency and will have a negative effect on your credit file

    3. If your circumstances improve during the moratorium period your DRO could be revoked

    4. Your details will be listed on the insolvency register

    5. Your credit rating will be negatively effected for 6 years

  • Bankruptcy

    Bankruptcy is an insolvency procedure, you pay a fee of £680, your debts are then frozen for 12 months and written off once this moratorium period ends.

  • Advantages:
    1. Bankruptcy includes most debts

    2. Your creditors can no longer enforce their debts once your Bankruptcy is approved

    3. You can pay the fee in instalments, however, you cannot submit the application until it is paid in full

  • Disadvantages:
    1. There is a fee of £680 to declare yourself Bankrupt

    2. If you’re in employment you may have to make monthly contributions into your bankruptcy for a period of 3 years, this is referred to as an Income Payment Order / Arrangement.

    3. If you own assets they could be at risk

    4. Your details will be listed on the insolvency register

    5. Your credit rating will be negatively affected for 6 years

  • Individual Voluntary Arrangement (IVA)

    An Individual Voluntary Arrangement or IVA is a legally binding arrangement with your creditors. You can only apply for an IVA through an Insolvency Practitioner. You would usually make a payment for between 60 and 72 months toward your debts and anything owing after this period would be written off.

  • Advantages:
    1. Usually there is no upfront fees when setting up an IVA

    2. If you have assets these may be protected during the IVA

    3. The creditors included in the IVA cannot continue to enforce their debt

    4. Your Insolvency Practitioner will liaise with your creditors on your behalf

  • Disadvantages:
    1. Your details will be listed on the insolvency register

    2. Your credit rating will be affected for 6 years

    3. You cannot apply for any further credit during the IVA without the supervisor’s consent

  • Consolidation Loan

    A consolidation loan is a form of credit taken to consolidate all of your debts into one manageable payment each month.

  • Advantages:
    1. All your debts are in one place with the same provider

    2. It makes the repayments easier to manage

  • Disadvantages:
    1. Depending on your current credit status a consolidation loan may have a high interest rate

    2. You may not be accepted for a consolidation loan if your credit rating has been negatively affected

    3. You may get into further debt once the interest on the loan is added to the overall balance or if you’re unable to borrow as much as you currently owe.