The basics
A debt management plan is an informal agreement between you and your creditors to repay what you owe in a way you can afford. A provider works out your budget, negotiates with each creditor, and you usually make one regular payment that is shared among them.
Pros
- One payment instead of many
- Repayments based on what you can actually afford
- Creditors may agree to freeze or reduce interest and fees
- Not a formal insolvency, so it is not recorded on the National Personal Insolvency Index
Cons
- Creditors do not have to agree
- Arrangements may appear on your credit file
- Plans can take several years
- Paid providers charge fees, so compare options carefully
DMP, debt agreement or bankruptcy?
| Debt management plan | Debt agreement | Bankruptcy | |
|---|---|---|---|
| Type | Informal | Formal, under the Bankruptcy Act | Formal |
| Creditors bound? | Only those who agree | Yes, if a majority by value accept | Yes |
| Public record | No | Yes, on the NPII | Yes, on the NPII |
Choosing a provider
Check that the provider holds an Australian Credit Licence and is a member of AFCA. Ask for a written quote of all fees before you sign, and make sure you understand how much of each payment goes to your creditors. Moneysmart and the National Debt Helpline (1800 007 007) have useful free information.