A debt management plan (DMP) isn't legally binding, so you can cancel it if you feel it isn't working for you. However, you may not get a refund of your fees and you'll need to make sure you have another way of dealing with your debts.
This page explains what to think about before cancelling your DMP and how to go about doing it.
Top tip
When you enter an agreement for a DMP, you should be given information about your right to cancel, an explanation of whether you'll get a refund of any fees, and whether you will be charged a cancellation fee.
If you're not given this information, your DMP provider may be breaking the conditions of its FCA authorisation. You can make a complaint.
Can you cancel a DMP?
A DMP isn't a legally binding agreement. This means that you can cancel it if you want to. There are a number of reasons why you might want to cancel, including:
you're not happy paying a fee each month which means there's less money left to pay your creditors
the interest on your debts hasn't been frozen, so the problem is getting worse
your circ*mstances have changed for the worse and you're struggling to make the payments
you've come in to some money, perhaps through an inheritance or payment protection insurance reclaim, and are in a position to pay off your debts more quickly
you're not happy with your provider.
Before you cancel
Before you cancel your DMP, you need to think carefully about what will happen next. Ask yourself these questions.
How are you going to deal with your debts now?
Before you cancel your DMP you should think about how you're going to deal with your debts afterwards. When you cancel, the provider will tell your creditors, so they might start charging you interest and late payment fees again, as well as expecting you to resume higher payments. You'll also have to deal with your creditors yourself again. Think about how you're going to cope with this.
You should think about other debt solutions that would help you to deal with your debts before you go ahead and cancel your DMP.
Will you get a refund of any fees?
Whether or not you can get a refund of any fees or charges from your DMP will depend on what your agreement with the DMP provider says. Check the terms and conditions carefully to see if you can get a refund of some of your fees.
If you entered the DMP agreement over the phone or on the internet, then it is classed as a distance sale which gives you extra rights. You will have a cooling off period of 30 days. During this time, you can cancel your DMP for any reason and get a refund of any fees you've paid.
Will you have to pay a cancellation fee?
Your provider should have given you information about cancellation fees when you first entered your agreement. These fees should be reasonable.
Are you cancelling because you were misled?
DMP providers have to follow certain rules as a condition of being FCA authorised. These include not misleading you and making sure you have all the information you need to make an informed decision about starting a DMP. If you believe your provider misled you, perhaps by making claims that weren't true or leaving out important information, you can make a complaint as well as cancelling your DMP.
Cancelling your DMP
To cancel your DMP, you need to contact your provider and ask to cancel. They will inform your creditors that the agreement has been cancelled, so you can expect to start dealing with them yourself again.
Next steps
FAQs
When you cancel, the provider will tell your creditors, so they might start charging you interest and late payment fees again, as well as expecting you to resume higher payments. You'll also have to deal with your creditors yourself again. Think about how you're going to cope with this.
What happens if I cancel my debt review? ›
The following will happen after a consumer cancels debt review: The original contractual interest rates will become applicable again. Waived delinquent payment penalties may get levied against current accounts. Credit providers may start legal action as the consumer will no longer have protection.
Is cancellation of debt a good thing? ›
Debt forgiveness may negatively affect credit scores, making it challenging to obtain future loans or credit. Forgiven debt of more than $600 may be considered taxable income, potentially resulting in a hefty tax bill.
Can creditors reject DMP? ›
Sometimes a creditor will refuse to deal with a DMP provider. This could be because the creditor doesn't want to accept the reduced payments or sometimes it could be because they've objected to you using a fee-charging provider, which would mean there's less money to pay the debts you have with them.
What are the disadvantages of debt cancellation? ›
You May End Up with More Debt Than You Started
Stopping payment on a debt means you could face late fees and accruing interest. Additionally, just because a creditor agrees to lower the amount you owe doesn't mean you're free and clear on that particular debt.
How does cancellation of debt affect me? ›
In general, if your debt is canceled, forgiven, or discharged for less than the amount owed, the amount of the canceled debt is taxable. If taxable, you must report the canceled debt on your tax return for the year in which the cancellation occurred.
Does cancellation of debt get removed from credit report? ›
This information can remain on your credit report for up to seven years. If you are able to get your debt completely canceled, you then no longer have any responsibility for the amount owed. But the creditor must report the canceled amount or settled debt to the IRS using the Form 1099-C cancellation of debt.
How much does it cost to cancel a debt review? ›
If you have your paid-up letters from your creditors, the debt review removal cost will be R1150 (including VAT). If you do not have these paid-up letters from your creditors, there will be a higher cost depending on the amount of paid-up letters that will need to be retrieved.
Is it true that after 7 years your credit is clear? ›
Most negative items should automatically fall off your credit reports seven years from the date of your first missed payment, at which point your credit score may start rising. But if you are otherwise using credit responsibly, your score may rebound to its starting point within three months to six years.
Can a creditor still collect after issuing a 1099-C? ›
In this event, the account is still delinquent, but the debt hasn't been forgiven, so the lender may still try to collect. The IRS amended the rule later that year, so creditors are no longer expected to file a 1099-C just because it's 36 months past due. But it is possible for it to still happen.
I am therefore asking you to consider writing off my debt as I can see no way of ever repaying it. If you are unable to agree to this, please explain your reasons. Thank you for your help and I look forward to hearing from you.
Is debt forgiveness legit? ›
But the harsh truth lies somewhere short of "totally erased" and "no consequences." To be clear, debt forgiveness does exist, and it's possible to settle your debt for less than what you owe. But to get it totally erased is rare, and it usually requires an extreme measure, such as bankruptcy.
Can I keep my bank account on a DMP? ›
Your Bank Account & A Debt Management Plan
In conclusion, a Debt Management Plan (DMP) does not directly affect your bank account. You can usually continue using your current bank account as usual when you enter a DMP providing that you do not wish to include a debt on your DMP that is with your bank account provider.
Can I get credit if I have a DMP? ›
If you're in a debt management plan (DMP), it may have an impact on your credit rating. This could mean you find it more difficult to get credit in the future.
What is the maximum debt for DMP? ›
What is the maximum amount of debt suitable for a DMP? There isn't a fixed maximum debt level for a DMP. What's more important is whether the plan can help the debtor manage and clear their debts in a reasonable amount of time.
Can you come out of a debt management plan? ›
But if you change your mind, you can cancel a DMP at any time. Some of the potential reasons you may consider canceling your DMP include: Your financial situation has improved and you no longer need the DMP. You've received a windfall of cash and can pay off your debt in full.
Does cancellation of debt hurt your credit score? ›
The Bottom Line. If you are facing serious financial difficulties, you may be able to get all or a portion of your debts canceled. However, debt cancellation can have long-term negative consequences to your credit, and you should consider it only when there are no better alternatives for you.
How does debt cancellation affect your credit score? ›
Unless debt cancellation comes in the form of bankruptcy or debt settlement, cancellation of debt doesn't always impact your credit score. However, debt cancellation may not be all good news for you. In some cases, you may have to pay taxes on canceled debt, as the government may consider it taxable income.
Can I cancel debt consolidation agreement? ›
You can cancel it for any reason — even if you simply change your mind. If the agreement does not follow the law or if you did not get a written copy of it, you have the right to cancel the agreement any time within one year after you sign it.
