Consolidation suits homeowners who can afford to repay their debts in full and want a lower monthly payment; a debt management plan (DMP) suits people who cannot meet their contractual payments at all. A DMP is an informal arrangement, set up free by a charity such as StepChange, where you pay what you can afford, typically over 5 to 10 years, and interest is often frozen, though it marks your credit file for six years. Consolidation, through a secured loan (also called a homeowner loan or second charge mortgage) or a remortgage, repays every creditor in full with borrowing secured on your home, which may be repossessed if you do not keep up the payments.
- A DMP is not legally binding; creditors can refuse to join it or withdraw from it, though most engage.
- Free DMP providers such as StepChange and PayPlan charge nothing; some commercial providers take a fee from your payments.
- Interest and charges are often frozen on a DMP, but creditors are not obliged to freeze them.
- Consolidation repays creditors in full and leaves you with one new loan at one rate over one term.
- A DMP adds no new secured debt to your home; a consolidation loan or remortgage does.
- Checking your options will not affect your credit score.
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| Debt consolidation | Debt management plan | |
|---|---|---|
| Rate level | A new secured loan or remortgage rate, usually well below card rates | Interest is often frozen or reduced, but this depends on each creditor agreeing |
| Fees | Arrangement, valuation and broker fees for a secured loan; remortgage fees and any ERC | Free through StepChange, PayPlan or Citizens Advice; fee charging providers exist |
| Term | A fixed term, commonly 5 to 25 years, with a known end date | Open ended; it lasts until the debts are repaid at the agreed monthly amount |
| Secured on your home? | Yes: a secured loan or remortgage is a charge on your property | No; a DMP creates no new debt and no charge on your home |
| Effect on existing mortgage | None for a secured loan; a remortgage replaces it | None, and mortgage payments are treated as a priority outside the plan |
| Credit file | A new account; on-time payments can improve your score over time | Accounts default and the DMP is recorded, staying on file for six years from each default |
| Speed | Secured loan typically 2 to 4 weeks; remortgage 6 to 8 weeks | Can be set up within days once your budget is prepared |
| Amount available | From about £10,000 upwards, subject to equity and affordability | Any amount of unsecured debt; no borrowing involved |
| Best when | You can afford full repayment and want it cheaper and simpler | Your income cannot cover contractual payments even after consolidation |
| Worst when | The payment only works if nothing goes wrong | You could afford to repay in full and would rather protect your credit file |
What is a debt management plan and how does it work?
A debt management plan is an informal agreement between you and your unsecured creditors to repay what you owe at a rate you can afford. You draw up a budget, usually with a free provider such as StepChange, PayPlan or Citizens Advice, work out what is left after essential living costs and priority bills, and offer that amount each month. The provider distributes it among your creditors in proportion to what each is owed.
Because it is informal, nothing about it is binding. Creditors can decline to take part, can continue to add interest and charges, and can still take recovery action, although in practice most engage with a plan from a recognised provider and many freeze interest once they see you are paying what you can. The plan lasts as long as it takes to clear the debts at the agreed amount, which for larger balances can be many years.
The credit file consequence is real and lasting. Accounts in a DMP are usually marked as defaulted or in an arrangement, each default stays on your file for six years from its date, and lenders can see the plan while it runs. A DMP is not a way to protect your score; it is a way to stop the debts growing while you repay them at a sustainable pace. It covers unsecured debts only. Your mortgage and any secured loan sit outside the plan as priority commitments, which is one reason homeowners are advised to keep those payments up first. MoneyHelper's debt advice locator lists free providers across the UK.
What is debt consolidation for a homeowner?
Debt consolidation means taking out one new loan to repay several existing debts in full. For a homeowner the two routes are a secured loan, also called a homeowner loan or second charge mortgage, which sits behind your mortgage as a separate agreement, or a remortgage to pay off debt, which replaces your mortgage with a larger one and releases the difference. Both use the equity in your home as security. Our secured loan vs remortgage comparison explains how to choose between them.
Consolidation is the route for someone whose debts are affordable but expensive and untidy. Credit cards at high rates, an old personal loan and an overdraft are replaced by one payment at a lower rate over a term you choose. Every creditor is repaid in full, so there are no defaults, no arrangement markers and no negotiation. The new account appears on your credit file and, paid on time, tends to improve your score over the following years.
FLA data shows 44,725 new second charge agreements worth £2.4bn in the 12 months to June 2026, with loan consolidation at least 60% of new business. The trade off is the security. You are converting unsecured debt, which a creditor can only pursue through the courts, into debt secured on your home, which a lender can ultimately repossess if you do not keep up the payments. That is why lenders and advisers are required to consider whether consolidation is in your interests, not just whether you qualify.
How do the numbers compare on £20,000 of debt?
The example below takes credit cards of £12,000 and a personal loan of £8,000 and shows what consolidation and a DMP might each look like. The DMP line assumes every creditor agrees to freeze interest, which is common but not certain, and a payment based on an affordability budget. It uses the fixed illustrative rates used across this site.
Illustrative rates: The rates in this example are fictional and used only to show how the numbers work. They are not an offer. Your actual rate may be lower or higher and will depend on your circumstances, your property and the lender. Consolidating debt over a longer term can mean you pay more interest overall, even if your monthly payment falls.
| Position | Monthly | Total repayable |
|---|---|---|
| Current payments: cards £12,000 at 24.9% (minimum payments) and personal loan £8,000 at 12.9% over 5 years | £532 | Depends on how long the cards take to clear |
| Secured loan: £20,000 at 7.9% over 15 years | £190 | £34,196 |
| Remortgage: £20,000 added at 5.4% over 20 years | £136 | £32,748 |
| Debt management plan: £20,000 with interest frozen, £250 a month | £250 | £20,000 over 6 years 8 months |
On these figures the DMP is the cheapest in total, because frozen interest means you repay only what you owe, and it finishes years before either loan. What it costs instead is your credit file for six years. The monthly comparison is the real test: a DMP is built around what you can afford, so if £250 fits your budget after essentials, a £190 secured loan payment may fit too. If even £190 does not, consolidation is not available and the DMP, or a formal option, is the realistic route.
What does each do to your credit file and your home?
The two routes pull in opposite directions on these points. Consolidation protects your credit file and exposes your home. A DMP protects your home and marks your credit file.
With consolidation, creditors are repaid in full, so no defaults are registered and there is nothing to negotiate. The new loan is one more account; on-time payments build history and reduced card utilisation tends to lift your score within a year or two. Against that, the debt is now secured. Fall behind on a secured loan or remortgage and the lender can add charges, register arrears, and ultimately apply to the court to repossess your home. Our guide on what happens if you miss a secured loan payment sets out the sequence.
With a DMP, no new charge is placed on your property and no lender gains a claim on it, but the unsecured accounts usually default, and each default stays on your file for six years from its date. Getting a mortgage or remortgage during that period is harder, and the rates on offer are higher. Once the plan is complete and time has passed, mainstream borrowing becomes available again; our page on remortgaging after a DMP covers how lenders treat it. A DMP does not stop creditors taking court action, though most do not while payments arrive, and it does not affect your mortgage as long as you keep paying it.
Which should you choose, and where do you get free advice?
Start with affordability, honestly assessed. If, after essential living costs and your mortgage, you can afford a consolidation payment in a bad month as well as a good one, consolidation is usually the better route: it protects your credit file, ends on a fixed date and involves no negotiation. If the payment only works on a very long term, or your income does not cover your outgoings at all, a DMP or a formal solution is the right conversation, and it should happen before anyone puts a charge on your home.
The advice is free and impartial. StepChange (stepchange.org) and Citizens Advice will draw up a budget with you and set up a DMP at no cost if that is what fits, or tell you if it is not. MoneyHelper (moneyhelper.org.uk), the government backed service, explains every option including the formal ones such as an IVA, a debt relief order and bankruptcy, and has a locator for free advisers near you. Our guide on consolidation vs an IVA for homeowners covers the formal route in more detail.
A qualified adviser assessing you for a secured loan or remortgage should point you towards that advice if the numbers do not work; if one does not, treat it as a warning sign. For some homeowners who check their options, the right answer is a DMP rather than a loan.
What improves your chances
- Write down a full monthly budget, including every essential cost, before deciding anything; both routes start from the same number.
- Ask whether the consolidation payment would still fit if your income fell for three months; if not, speak to a free debt charity first.
- Check whether your creditors are already adding interest and charges; a DMP is most effective when they agree to freeze them.
- Weigh six years of defaults on your credit file against putting a charge on your home, and decide which matters more to you.
- Get free, impartial advice from StepChange, Citizens Advice or MoneyHelper before a secured loan application, not after.
Alternatives worth considering
Between the two sit several other options. For smaller sums with good credit, an unsecured personal loan or a 0% balance transfer card consolidates without touching your home; see balance transfer vs consolidation loan. Above a DMP sit the formal insolvency routes: an IVA, which is legally binding and can involve your property, a debt relief order for those with low income and few assets, and bankruptcy. Our consolidation vs IVA guide and the secured loans and IVAs page explain how each interacts with a home.
Worried about debt? Get free advice first
If you're struggling, it's worth speaking to a free, impartial debt advice service before you borrow more. They don't sell anything and won't judge your situation.
- MoneyHelper: Free, impartial debt advice backed by government
- StepChange: The UK's largest free debt charity
- Citizens Advice: Free, confidential advice on debt and money
Checking your options with Equiclear will not affect your credit score.
Frequently asked questions
Is a debt management plan better than a consolidation loan?
It depends on affordability. A DMP is better if you cannot meet your contractual payments, because it reduces them to what you can afford without new borrowing. A consolidation loan is better if you can afford full repayment and want it cheaper, simpler and without defaults on your credit file.
Does a DMP affect my credit score?
Yes. Accounts in a DMP are usually marked as defaulted or in an arrangement, and each default stays on your credit file for six years from its date. Lenders can see the plan while it runs, which makes new borrowing, including a remortgage, harder and more expensive until it has completed.
Can I get a secured loan while on a DMP?
Some specialist lenders consider it, usually at a lower loan to value and a higher rate, and often only if the loan clears the DMP in full. Once the plan has completed and time has passed, more lenders will consider you. A qualified adviser can tell you which lenders fit.
Is a DMP free?
Through StepChange, PayPlan, Citizens Advice and other charities, yes: every pound you pay goes to your creditors. Some commercial firms charge a set up fee and a monthly fee taken from your payments, which slows repayment. There is no reason to pay for a DMP.
Do creditors have to freeze interest on a DMP?
No. A DMP is informal and creditors are not obliged to freeze interest or charges, although most do once a recognised provider is involved and payments are arriving. If a creditor refuses, the plan still runs, but that debt takes longer to clear.
Will a DMP stop creditors taking action?
Not automatically. Creditors can still send default notices and, in principle, take court action, but most do not while a plan from a recognised provider is being paid. A DMP has no legal protection; an IVA, which is a formal arrangement, does.
Does checking my options affect my credit score?
No. Checking your options will not affect your credit score. Equiclear does not search your credit file, and any check the broker makes at this stage is a soft search, which other lenders cannot see. Talking to StepChange, Citizens Advice or MoneyHelper does not affect your score either. A full loan application is recorded on your file in the normal way.