If your debts have become more than you can repay, a debt management plan (DMP) and an Individual Voluntary Arrangement (IVA) are two of the most common solutions in the UK. Both replace many payments with one affordable monthly amount. The big differences are whether the plan is legally binding, and whether any debt is written off.
The right choice depends on your situation. Before deciding, speak to a free, regulated debt adviser, who will look at every option with you.
At a glance
| Debt management plan | IVA | |
|---|---|---|
| What it is | An informal agreement to repay at a rate you can afford | A legally binding agreement with your creditors |
| Where | Anywhere in the UK | England, Wales and Northern Ireland (Scotland has a similar Protected Trust Deed) |
| Debt written off? | No, you repay everything eventually | Yes, whatever is left at the end is usually written off |
| How long | Until the debts are paid; could be many years | Usually 5 or 6 years |
| Interest and charges | Creditors are asked to freeze them but don't have to | Frozen once the IVA is approved |
| Creditors must agree? | No, each can refuse or keep contacting you | Creditors owed at least 75% of the debt (of those who vote) must approve; then it binds them all |
| Cost | Free from debt charities; fee-charging firms exist | Insolvency practitioner fees, usually taken from your payments |
| Credit file | Missed or reduced payments and defaults show, usually for six years | Recorded for six years from the start date and listed on the public Insolvency Register |
| Can you end it? | Yes, at any time | Only with consequences; a failed IVA can lead to bankruptcy |
How a debt management plan works
A DMP provider works out what you can afford after your essential bills, then asks each creditor to accept a lower monthly payment. You make one payment to the provider, who shares it out. It's flexible: your payment can go up or down if your circumstances change, and you can stop at any time.
A DMP only covers non-priority debts such as credit cards, store cards, overdrafts, personal loans, catalogues and payday loans. It can't include priority debts like rent, mortgage, Council Tax, energy bills, court fines or child maintenance; those must be dealt with first.
The downsides: creditors don't have to agree or freeze interest, so in some cases the debt shrinks slowly. Because you pay back everything, a DMP can last a long time if your payment is low.
How an IVA works
An IVA is set up by a licensed insolvency practitioner. You make affordable monthly payments, usually for five or six years, and at the end any remaining unsecured debt is usually written off. Once approved, interest stops and creditors can't chase you or take further action over the included debts.
The trade-offs are bigger:
- Fees: the insolvency practitioner's fees are usually taken from your payments, and fees vary between providers.
- Homeowners: you may be asked to remortgage towards the end of the IVA to release equity for your creditors.
- Missing payments: if you can't keep up, the IVA can fail, and creditors can then apply to make you bankrupt.
- Public record: your IVA is listed on the Insolvency Register while it runs.
Which might suit you?
- A DMP can suit you if you could repay everything in a reasonable time at a reduced rate, want flexibility, or your circumstances may improve soon.
- An IVA can suit you if your debts are large compared with what you can pay, you have a steady income, and you want a fixed end date with the rest written off.
- Neither might be right. Depending on your situation, a Debt Relief Order, bankruptcy, Breathing Space (which pauses interest and creditor action for up to 60 days in England and Wales) or simply a budget and a payoff plan could fit better.
Get free advice first
Some firms advertise debt solutions heavily and charge for help you can get for free. StepChange, National Debtline, Citizens Advice and MoneyHelper all offer free, impartial debt advice and can set up a DMP without fees. Find them on our financial resources page.
If you can still keep up
If you're managing your minimum payments but want to clear debt faster, you might not need a formal solution. A clear plan, paying extra on one debt at a time, can make a big difference. The free payoff calculator shows how long your debts would take and how much extra payments help, and the consolidation calculator checks whether combining them into one loan would cost less.
This guide is general information about UK debt solutions, not financial or debt advice. Rules differ in Scotland. Speak to a regulated debt adviser about your own situation.