The cost of a Debt Management Plan (DMP) differs depending on how you implement it. There are various options you can choose.

In this article:

• Starting a DMP yourself
• Using a Fee Charging Debt Management Company
• The free to consumer option
• Why pay a Debt Management Company?

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The Cost of starting a DMP yourself

There is nothing to stop you setting up your own Debt Management Plan. If you choose this option there will be no real cost other than of course your time.

You might feel if you negotiate with your creditors yourself there will be less chance of them agreeing to freeze interest charges. However there are actually few statistics to confirm this.

Of course will need to make your best effort to pay as much as you can afford. But as long as you do your creditors should help you by suspending or at least reducing the charges they add.

If you have the time to negotiate reduced payments with your creditors yourself and are confident about doing this there is nothing to stop you.

The Cost of a Fee Charging Debt Management Company

A number of fee charging companies are authorised to implement and manage a DMP on your behalf. They will charge a fee for providing this service.

You will normally pay management fees to cover the cost of their services. These will normally be between 15%-17.5% of your ongoing payments.

The fees are charged to cover the negotiation of the initial agreement with your creditors and the ongoing cost of distributing your payments to them. In addition they cover periodic (usually annual) reviews that will be required during the Plan.

All the fees charged by a commercial debt management company are taken from your agreed payments. You do not have to find extra money each month to them each month.

Using a Free to Consumer Debt Management Provider

There are Providers that can help you set up a DMP for free. You do not have to pay anything for their services. As a result all the money you pay into your Plan each month is used to repay your debts.

This may seem like an ideal situation. However it is important to understand that these organisations are actually funded by your creditors. As such this relationship does therefore raise questions about whether they are acting in your best interest.

Arguably a provider who is not acting solely in your best interest will not work as hard to ensure interest is frozen or be as willing to help when things change or go wrong.

If you live outside the UK free debt management plan providers such as Step Change are not usually able to offer you any assistance. You will need to use a commercial provider.

Why pay a Debt Management Company?

Given the availability of free debt management providers you are probably wondering why you would bother to pay for your Plan. There are a couple of things worth considering.

Someone you are paying will usually try to ensure they offer you the best possible service. They understand that if they do not do everything in their power to keep you happy they are likely to lose you as a client.

As such they will normally fight for interest to be frozen. In addition they will try to be flexible and help if you encounter problems during your plan such as needing to add new debts.

Paying a company which has your best interests at heart can offer benefits over a free service. However it could extend the length of your Plan as not all of your monthly payment goes towards your debts.