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How much does a debt management plan cost

How much does a debt management plan cost

The cost of a debt management plan depends on how you set it up. There are different costs depending on whether you negotiate the plan yourself or use a free or fee charging service.

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What is the cost if you set up a debt management plan yourself?

There is nothing to stop you setting up a debt management plan (DMP) yourself. 

If you feel capable, you can negotiate reduced payments with each your creditors. You then remain responsible for making sure the agreed amounts are paid to each on time every month.   

The monetary cost of this approach will be zero. However if you have more than one or two accounts, you need to factor in the cost associated with the time and energy you will spend getting agreements in place with each. This could be considerable.

Unless you are extremely organised and have sufficient time it is often more sensible to use a debt management service to help you set up your DMP.

Can you get a free debt management plan service?

Yes. You can get help with setting up and managing a debt management plan for free.

The largest provider of free debt management plan services in the UK is Step Change debt charity. If you work with them to implement a DMP, you will not be charged a fee. All of the money you pay into your Plan each month will go towards paying off your debt.

Step Change are able to operate with funding which comes largely from the banks. 

Because they are free, Step Change is a very sensible place for most people to get help to starting a DMP.

That said, not everyone can use their service. Unfortunately they will be unable to work with you if you are self employed or have already moved abroad

Step Change won’t work with self employed people or those who have already moved away from the UK. In these circumstances you will need to use a fee charging company.

How much does a commercial debt management company charge?

There are a number of commercial debt management companies who can assist you with setting up and managing a debt management plan. They will charge a management fee for this service.

The fee will normally be equal to around 17% of the money you pay into your Plan each month. There should be no up front fees because they are not allowed under the FCA rules.

The amount you are charged is deducted from the monthly payment you make. You don’t have to find extra money to cover it. However, this means that the debt you owe will be repaid that much slower.

There is normally no need to pay a commercial company because most people can get exactly the same service for free from Step Change. However, this is not available to everyone. If you are self employed or have moved away from the UK you will need to use a commercial provider.

Need more information about the cost of a debt management plan? Call us for free, confidential advice (0800 044 5407) or complete the form below.

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