What Types of Debt Can You Include within Your Debt Management Plan?

Before going ahead with a debt management plan, it's important to work out whether the debts you have can be included in the scheme.

Examples of debts that can be included in a DMP are:

Whereas priority debts can lead to serious consequences if not paid off promptly, non-priority debts are usually less important - however, failing to pay will impact your credit score, so they do still need to be paid off eventually. Legal action can also be taken against you in some circumstances, even if your debts are classed under the non-priority banner.

You also can't include secured debt in a debt management plan. Secured debt is based upon the lender receiving some form of collateral if the debt isn't paid within the agreed time. This will usually be either a car or a house.

If the payments aren't made in a timely manner, your lender could have the right to take the collateral from you. Unsecured debt, on the other hand, is debt that isn't secured against an asset, meaning your lender cannot seize goods from you to pay it off.

Who Qualifies For a DMP?

As DMPs are informal agreements, there isn't a list of set criteria that you need to abide by. However, there are some requirements you should take into account before applying.

The first step is ensuring that your debts qualify for a DMP - you need to ensure they're classed as unsecured and/or non-priority debts. Make sure you have enough money to keep up with the regular payments that will be required each month, as well as budgeting money for your other typical needs.

If you don't have a stable income coming into your bank account every month, your creditors might not agree to a debt management plan.

DMPs are only available to people living in England, Wales and Northern Ireland. If you live in Scotland, you will need to seek an alternative debt solution, such as a Debt Arrangement Scheme (DAS).

If you're unsure whether a DMP might be the best option for you, you might want to explore other options, such as an IVA. For more information about IVAs, fill in the form on our website and we'll get in touch as soon as possible.

The amount of unpaid debt you need to have accumulated differs depending on your IVA provider, but it's typically only considered when you owe more than £7,000 in unsecured debt.

Like debt management plans, you’ll pay one monthly payment, which will be distributed amongst your creditors. Only 75% of your creditors that vote on the proposals, have to agree to an IVA, and they're not allowed to hassle you or keep chasing you for the debt while the arrangement is in place.

As an IVA is a formal contract, there are steps that must be taken if you want to cancel it once the IVA is approved. As a result, it will not be cancelled immediately upon request. Also, if you do not keep up with the required payments, or comply with the other obligations, the IVA will be terminated.

Interest charges and other fees are frozen once the IVA is approved - these charges may be added to your existing debt if the IVA is terminated, which may mean there is no reduction in your debt if you do not complete the term.

If you still have unsecured debt remaining once you have completed the payment term, it will be written off. Your credit score will be affected by having an IVA, but this will start to recover after 6 years.

Find out whether you're eligible for an IVA by completing our initial assessment.

How Does an IVA Compare to a Debt Management Plan?

First, the similarities: both options allow you to consolidate your debt, ensuring that you only pay one affordable payment each month (instead of having to pay your creditors separately). Both also only cater to unsecured debts, and they share the rules regarding priority and non-priority debts.

However, this is where the similarities end. Unlike a debt management plan, an IVA means that you are entering a formal insolvency procedure, which essentially means that you're unable to pay off your debts when they're due. Because of this, IVAs are formal and legally binding, whereas DMPs are not.

You'll be added to the insolvency register if your IVA is accepted, which your creditors can check themselves. Your creditors are unable to contact you whilst you have an IVA in place. With a DMP, they're allowed to keep chasing you, and you are not placed on the insolvency register.

IVAs are usually set for a period of five to six years - any remaining unsecured debt is wiped at the end of this arrangement. When you have a DMP, the plan will run until the debt is fully paid off (up to ten years), unless you decide to cancel the plan. You can cancel a DMP at any time - although you may incur cancellation fees if you cancel before your debt has been cleared.

An IVA can’t be cancelled immediately, and can be terminated in some circumstances. The Insolvency Practitioner will need to liaise with your creditors, to confirm the termination of the IVA. Once the IVA is terminated, the termination will be added to your credit report.

When you take out an IVA, all fees and interest charges are frozen. However, if the IVA is terminated, these charges will be added on, dating from the start of the original arrangement. This could heavily increase the debt you have, making it less affordable to write off.

What Are the Pros and Cons of Using a Debt Management Plan?

There are many pros and cons to using a debt management plan. It's important to read through the information available to ensure you're fully informed before committing to a new debt solution.

If you're not sure about which option to go for, this section might help you to make up your mind.

Achieving Financial Freedom: The NDH Way

At NDH Financial, we're here to help you get back on track with your finances. We're unable to offer debt management plans, but as a personal insolvency specialist, with our own licenced insolvency practitioner, we can set up an IVA for you.

IVAs can be a really useful solution for people suffering from unmanageable debt, allowing you to combine all your unsecured debts into one affordable package each month, whilst giving you a fresh start within a reasonable period of time. To find out more about how an IVA can help you, head to our dedicated IVA Learning Hub.

NDH Financial is one of the top rated IVA providers based on Trustpilot reviews – our Insolvency Practitioner has helped thousands of people on their way to becoming debt-free with over 15 years experience. Our combined experience within the world of personal insolvency has poised us perfectly to be able to help people across the UK with their debt – our 5-star Trustpilot score speaks for itself.

Financial freedom starts with taking control of your debt. Get in touch today to get started.