If you are struggling with debt one of the most common solutions available is a Debt Management Plan (DMP). This allows you to reduce the payments that you make to your creditors each month so that they fit into a budget you can afford.

However, if you speak to various debt management companies they will often suggest that it is better to do an IVA (individual voluntary arrangement) than a DMP. For some people this may be true. However for others a DMP will be the right solution.

Why start a Debt Management Plan?

The main argument used against a DMP is that you have no legal protection from your creditors. They can still add interest and charges and you still have to repay everything that you owe. As such, it could take many years to pay off your debt.

While there is truth to this argument a DMP still offers many advantages. The first is that you only pay what you can afford. As long as you are making your best effort to pay what you can, your monthly payments can be far less than what you might have to pay in an IVA.

If you are a home owner, you are not obliged to release equity from your property to help repay your creditors if you do not want to.

A debt management plan is also extremely flexible. If your circumstances improve, you can increase your payments at any time. For this reason, many people use a DMP simply to give themselves a breathing space.

When is an IVA a sensible alternative to a DMP?

The key benefit of an IVA is that your debts will be solved in a specific time. You pay as much as you can afford for five or six years. No further interest or charges are added and then whatever debt is left outstanding is written off. This is a clear advantage over a DMP. However it comes with a price.

You must maintain your agreed payments each month. However, if you find you are unable to maintain these, unlike in a DMP where you can simply reduce them, if you are in an IVA changing your payments is far more difficult.

If you are a home owner, an IVA will give legal protection against your creditors taking action to secure their debts against your property. However, you will also have to agree to release equity from the property if it is available.

Start a DMP and then change to IVA later

When choosing the right debt management solution for you, the key thing is to feel comfortable with what you are doing.

It is true that an IVA could offer you advantages. However, you may feel that being bound into a formal legal IVA agreement straight away is too big a step to take and you may want to make every effort to repay everything you owe to your creditors. A DMP will allow you to do that.

At the end of the day, if you are unsure about which way to turn, the great thing about a debt management plan is that you can start it and get immediate relief from your creditors but then it is flexible.

You can stay in the plan for 6 months and then review your situation. If you are happy, you can stick with it. However, if you feel that doing an IVA would be a better option at that time, you can make the change very easily.