Debt Management Company Fees: Free vs Paid

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Key takeaways

Free providers set up and run debt management plans without charging you
Fee-charging firms take money from your payments, so your debts clear more slowly
Ask whether you pay anything at any stage, and check FCA authorisation
Beware cold calls, upfront fees and promises of fixed write-offs
Start with a free adviser, then decide whether any paid service adds value

A debt management plan can be a sensible way to repay debts you cannot afford to clear at the contractual rate. But who sets it up matters a great deal. Some providers set up plans for free. Others charge fees, which come out of the money you pay in each month. When you are struggling, paying even a modest fee can slow your progress and cost you hundreds or thousands of pounds over the life of the plan. This guide explains the difference between free and fee-charging providers, what to ask and how to protect yourself.

What a debt management company does

A debt management company helps you set up and run a debt management plan (DMP). It works out how much you can afford, contacts your creditors to ask them to accept reduced payments and freeze interest, and then takes one monthly payment from you and distributes it. It may also deal with creditors on your behalf and send you statements. For how the plan itself works, see debt management plans.

Free providers and fee-charging providers

There are two broad groups.

Free providers: Debt charities such as StepChange and other not-for-profit services set up and manage plans without charging you. Some commercial companies also offer free plans, funded by contributions from creditors. Check carefully what is free and what is not.
Fee-charging providers: Some firms charge a set-up fee, a monthly management fee or both. These are usually taken out of your payment before the money reaches your creditors, so less goes to clearing your debts.

The plan you get can be much the same in both cases. The difference is who pays for the administration. Fees reduce what your creditors receive, which can lengthen the plan.

A worked example

Suppose you can afford £200 a month. With a free provider, the full £200 goes to creditors. With a provider that charges a 15% monthly fee, £30 goes to the provider and £170 to creditors. Over five years, that is £1,800 in fees, and your debts reduce more slowly. These are illustrative numbers, not real prices, but they show why fees matter.

Questions to ask any provider

Do I pay any fee at any stage, and how much in total?
Are you authorised by the Financial Conduct Authority? Can I check the Register?
How do you get paid, and do you earn from creditors?
Will you tell me about free alternatives, a Debt Relief Order, an IVA and bankruptcy?
What happens if I miss a payment or want to leave?
How will you treat my information?

Write down the answers and keep them. Advertising and cold calls often sound urgent, but you do not have to decide on the day.

How to spot a problem

Cold calls or texts offering to wipe or reduce your debts
Requests for payment before you have received any service
Promises that your debts will be cut by a fixed percentage
Pressure to cancel direct debits or to stop speaking to creditors
No mention of free services

If any of these ring true, stop and talk to a free adviser. Our guide to free debt advice in the UK lists where to go.

Regulation

Firms giving debt advice or managing debts for a fee need authorisation from the Financial Conduct Authority. Authorised firms must follow rules on how they treat customers, including being clear about fees. If something goes wrong, you can complain to the firm and, if it is not resolved, to the Financial Ombudsman Service. Check the Register before you sign. See financial adviser for debt for the difference between debt advisers and other advisers.

What if you are already paying a fee?

Review what you are getting. Compare the cost with a free provider and find out how much of each payment reaches your creditors. If you decide to move, ask the new provider to explain the process and check any exit charges. Speak to a free adviser first, because moving a plan needs care to make sure creditors continue to accept the arrangement. If you have missed a payment, read about a missed DMP payment.

What a fair arrangement looks like

Whether a provider is free or paid, a fair arrangement is transparent. You should receive a written agreement showing any fees, what the provider does, what happens if you miss a payment and how to leave. You should be told about free alternatives. Statements should show exactly how much of each payment went to each creditor. If anything is unclear, ask in writing and keep the reply.

Switching provider

If you are paying fees and want to move, speak to a free adviser first. Ask the new provider to explain how the transfer works. Make sure you do not miss a payment during the changeover, and tell your creditors if the details change. Check whether the old provider holds any money for you and ask for a final statement.

Checking the terms in writing

Ask for the agreement before you sign and read the fee section line by line. Look for set-up fees, monthly fees, charges for changes or early exit, and what happens to fees if you miss a payment. Ask what share of your first payments goes to fees. If the provider cannot explain the charges in plain English, that is reason enough to look elsewhere.

Frequently asked questions

Is a debt management plan free?

It can be. Charities set up plans without charging you. Some companies charge set-up or monthly fees, so ask before you agree.

Do all debt management companies charge fees?

No. Some are funded by creditors or charities and charge nothing to you. Check the terms carefully.

Are debt management companies regulated?

Firms that provide debt advice or manage debts for a fee must be authorised by the Financial Conduct Authority. You can check the Register.

Can I switch from a paid provider to a free one?

Often yes. Speak to a free adviser first to make sure the move is handled properly.

Sources and further reading

Dealing with debt — MoneyHelper
Financial Services Register — Financial Conduct Authority
Financial Ombudsman Service — Financial Ombudsman Service

This page provides general information only. It is not personalised financial, legal or tax advice, and rules and figures can change. Your situation is unique — please check official sources such as GOV.UK and MoneyHelper, and speak to a qualified, FCA-authorised adviser before making important decisions about your money.

Written by

MoneyBrink Editorial Team — Editorial team

The MoneyBrink Editorial Team researches, writes and reviews every guide on this site. We work from official UK sources such as GOV.UK, the Financial Conduct Authority, MoneyHelper and the Money and Pensions Service, explain things in plain English, and update articles when the rules change. We do not sell financial products and we do not give personal advice.

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