What are the pros and cons of Debt Management Plans? Learn about its advantages and disadvantages, and understand if it’s the right option for you.
Disclaimer: The content was true at the time of publishing on 6 August 2025, but may now have changed.
When you’re grappling with debt, finding a clear path forward can feel overwhelming. You might have heard about Debt Management Plans (DMPs) as a way to make your repayments more manageable, but how do you know if it’s the right solution for your unique situation?
In this blog, we’ll break down the key Debt Management Plan pros and cons, giving you a balanced view of how they work, what to expect and if a DMP could be the right step on your journey towards a debt free life.
What is a Debt Management Plan?
A Debt Management Plan (DMP) with a debt advice firm involves creating a bespoke, sustainable budget to make manageable payments towards debts. It isn’t just simply repaying debts, neither is it just making contractual payments; these are both types of repayment, but a DMP is a specific debt repayment plan/product.
DMPs work with the client making a single affordable payment (based on your budget) to the debt advice charity/company, and they will use those funds to disburse the funds to the various creditors. Many deal with just non-priority debts, but CAP supports clients to pay their priority debts (such as court fines, Council Tax, rent/mortgage) and non-priority debts via their CAP plan when in a DMP route.
Advantages of a Debt Management Plan
1. They’re flexible
One advantage of a Debt Management Plan is that it’s bespoke to your personal circumstances and monthly budget. They work by letting you pay back what you can afford. This means that after your essential living costs, such as your mortgage or rent payments, utility bills and other expenses, you’ll agree to pay back a certain amount each month into your plan, which CAP (or other debt help service) uses to pay off your debts.
2. Creditors may stop interest and charges
A significant benefit often achieved through a Debt Management Plan is the potential for your interest and charges to be stopped. While creditors aren’t legally obliged to do this, it’s an outcome that they could agree to, making your path to becoming debt free more manageable.
If you choose CAP as your DMP provider, we can negotiate with creditors on your behalf. When CAP is involved, your creditors are more likely to accept payment offers and reduce interest and charges.
3. You could pay a Debt Management Plan off early
DMPs are flexible, so if your financial situation improves, you can increase your repayments and get out of debt sooner. This could look like contributing a single, larger amount or increasing your regular payments when your budget allows. To understand if increasing your payments or making a lump sum is the right move for you, speak to your debt advisor first.
4. There are fewer restrictions
A great part of a DMP is that there are few/no restrictions on people who are in a DMP compared to insolvency. This means you can still do things like being a trustee of a charity or hold power of attorney over an individual running a limited company.
It was a massive relief that there was someone wishing to listen to you, and just made you really feel there was light at the end of the tunnel.
CAP client, Angela, speaking about her experience of a DMP with CAP.
Disadvantages of a Debt Management Plan
1. It could be marked on your credit file
A significant consideration with a DMP is its effect on your credit score. While the Debt Management Plan itself isn’t directly noted on your credit file, a DMP will make payments to priority debts (PDs) such as arrears on bills, and we make pro-rata payments to non priority debts (NPDs).
If these payments happen to be more than what you originally agreed to pay, that’s great. However, often these flexible payments are less than the original minimums you promised to pay. Even if the creditor you owe money to agrees to accept these smaller payments, they might still mark this negatively on your credit report. They do this because you’re not meeting the original, full payment terms of your contract. So, essentially, paying less than you originally agreed, even if arranged, can still show up on your credit report as a ‘default’ or ‘missed payment.’’
If your financial situation changes, you’ll need to make sure you tell the debt help service you’re working with (such as CAP) as soon as possible, so your Debt Management Plan can be reworked to your needs and that your creditors will still be paid.
2. It could make it harder to buy a home
Understanding how a Debt Management Plan might affect your housing situation is something to also consider with this route out of debt.
If you’re already a homeowner:
Having a DMP doesn’t automatically jeopardise your home, provided you consistently keep up with your mortgage payments. However, it’s important to remember that DMPs are informal arrangements. While less common when a DMP is actively managed, unsecured creditors (debts like credit cards where you promise to repay what you owe) have the right to seek court action.
If you’re looking to buy a home:
Seeking homeownership while on a Debt Management Plan can be more difficult. Lenders may not know about DMPs, but they will look at your credit report and credit rating, which could limit your mortgage options, result in less favourable terms or lead to your application being declined. Despite these challenges, becoming a homeowner isn’t entirely out of reach. In some cases, especially if a potential mortgage payment might be lower than your current rent, it could still be a possibility.
Mortgage eligibility is complex and depends on each person’s individual circumstances. For personalised advice on buying a home, it’s always best to speak directly with a qualified mortgage lender or broker.
3. They can’t stop enforcement agents (bailiffs)
A key point to remember is that Debt Management Plans aren’t legally binding agreements. This means they can’t prevent creditors from continuing to contact you, or stop the possibility of bailiff action if a creditor chooses to pursue it. However, using a DMP as a route out of debt demonstrates a commitment to repaying, which could lead to creditors pausing or stopping further enforcement efforts.
If you’re worried about enforcement agents, you may qualify for the Breathing Space scheme, giving you temporary protection from most creditors for 60 days for certain debts. Speak to your debt advisor to see if you qualify.
4. It can be a slower process
As you will be paying your debts back at a rate you can afford, and in full, this could take a long time. However, the good thing to remember is that being debt free is what we are all aiming for through your Debt Management Plan, and if you choose to get help with CAP, we will support you on your journey, however bumpy the road may get. We’ll give you a call to confirm when you’re debt free, and then all that’s left is to celebrate!
How do I know if a Debt Management Plan is right for me?
A Debt Management Plan is just one of many routes out of debt. Whether it’s the right option for you will depend on your personal financial circumstances. We don’t charge a penny to get help from us, and our CAP debt advisors will talk you through all the options available. You’ll also receive 1:1 support with a local debt coach in your area. Check below to find debt help in your area. Although the first step is often the hardest, it’s really worth it.
