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DMP, DRO or IVA: which debt solution is right if I'm on benefits?

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UKUpdated · Written by BuyMeWhiskey Editorial Team · How we check facts

If you're on benefits with little spare money, a debt relief order is often the best fit: it's free and writes debts off after 12 months if you owe under £50,000, have under £75 a month spare and under £2,000 in assets; a DMP suits people who can repay everything, and an IVA suits larger debts with a steady surplus.

See how long repaying through a plan would really take with our debt payoff calculator, then take the numbers to a free debt adviser.

Open the Debt snowball vs avalanche calculator

The key difference: repay everything, or write some off

A debt management plan (DMP) repays all your non-priority debts, just more slowly. An individual voluntary arrangement (IVA) and a debt relief order (DRO) are formal insolvency solutions that write off what you can't pay. Which one fits depends mostly on two numbers: how much you have spare each month after essential bills, and what you own. If your income is mainly benefits, the spare amount is often small, and that pushes many people towards a DRO.

Debt management plan

  • An informal agreement with your creditors to pay what you can afford. You can set it up yourself or through a provider; free providers exist, so there's no need to pay fees.
  • It covers only unsecured, non-priority debts such as cards and loans. Creditors don't have to agree, interest isn't guaranteed to be frozen, and they can still take action.
  • Best when you can afford meaningful payments and could clear the debts in a reasonable time.

Debt relief order

A DRO is designed for people with low income and few assets, and it's often the best fit for people living on benefits. You're generally eligible in England and Wales if all of these apply:

  • you owe less than £50,000
  • you have less than £75 a month spare income after essential costs
  • you have less than £2,000 of assets, and don't own a vehicle worth £4,000 or more
  • you don't own your home
  • you've lived or worked in England and Wales in the last 3 years, and haven't applied for a DRO in the last 6 years

A DRO costs nothing, but you can't apply on your own: an approved debt adviser applies for you. You stop paying the included debts, including interest, for 12 months, after which they're written off. You still pay rent and bills, and some debts such as student loans and court fines aren't included. During the DRO you mustn't borrow more than £500 without telling the lender, act as a company director, or open a bank account without telling the bank. It can be cancelled if your finances change, and it's listed on the Individual Insolvency Register until 3 months after it ends.

Individual voluntary arrangement

  • A legally binding agreement, set up and run by an insolvency practitioner, to pay part of your debts. National Debtline says payments usually last five or six years, and the rest is written off.
  • It starts if creditors holding 75% of your debt agree, and then binds all of them, so they can't take action against you.
  • There are usually set-up and handling fees, and the IVA can fail, possibly leading to bankruptcy, if you can't keep up. Assets such as a home may be looked at.
  • It suits people with larger debts, a steady surplus and often a home to protect. It's rarely a fit for a small, benefits-only income.

And bankruptcy?

If you don't qualify for a DRO, for example because your debts are over £50,000, bankruptcy may be the alternative. Applying costs £680, and some charities can help with the fee.

Effect on your credit record

All of these show on your credit file. GOV.UK notes that a DRO stays on your credit record for 6 years, the same as other debt relief options. Under a DMP, accounts may still be marked as in arrears or defaulted, and a default also stays for 6 years from its date.

What to do first

  1. Get free debt advice (MoneyHelper lists free services). Only an approved adviser can set up a DRO anyway.
  2. Ask the adviser about Breathing Space: up to 60 days in which creditors can't contact you, add interest or take enforcement action while you decide.
  3. Keep paying priority bills like rent, council tax and energy.

In Scotland and Northern Ireland the options are different. In Scotland, for example, there's the Debt Arrangement Scheme instead.

Debt relief order limits (England and Wales)
Maximum debt£50,000Maximum assets£2,000Maximum vehicle value£4,000

Worked example

Kim lives in a rented flat and gets Universal Credit and PIP. After rent, bills and food she has £40 a month spare. She owes £14,000 on cards and catalogues and owns a car worth £3,000, with no savings.

  • DMP: paying £40 a month, even with all interest frozen, would take £14,000 ÷ £40 = 350 months, which is about 29 years (350 ÷ 12 ≈ 29.2).
  • IVA: a £40 surplus leaves little for creditors after fees, and an IVA usually lasts five or six years, so it's unlikely to be suitable.
  • DRO: her debt is under £50,000, her surplus is under £75, she has no assets over £2,000, her car is worth less than £4,000 and she rents. She looks eligible. An approved adviser applies for free, she stops paying these debts for 12 months, and then they're written off.

Over the 12 months of the DRO she keeps the £40 a month: 12 × £40 = £480 a year to build a small emergency fund. She must still pay her rent and bills, and tell the adviser if her income goes up.

I'm on benefits and in debt: is a DRO better than a DMP?#

Often, yes. If you owe under £50,000, have less than £75 a month spare, under £2,000 in assets and don't own your home, a DRO can write your debts off after 12 months at no cost. A DMP only makes sense if your surplus can clear the debts in a reasonable time.

Can I get a debt relief order on Universal Credit?#

Yes, being on benefits doesn't stop you; what matters is whether you meet the DRO criteria. Your spare income after essential costs, including income from benefits, must usually be under £75 a month. An approved debt adviser will check this and apply for you.

How much does a debt relief order cost?#

Nothing. GOV.UK confirms you don't need to pay for a DRO. You must apply through an approved debt adviser, and free advice services can do this.

What's the difference between a DMP and an IVA?#

A DMP is informal: you repay everything at an affordable rate, and creditors don't have to agree. An IVA is legally binding once creditors holding 75% of the debt agree; you pay for usually five or six years and the rest is written off. IVAs carry fees and are recorded on the Individual Insolvency Register.

Can I get a DRO if I have a car?#

Yes, as long as the vehicle is worth less than £4,000. Your other assets must also total less than £2,000. A debt adviser will ask you to value the car realistically.

What if my income goes up during a DRO?#

Tell the debt adviser who set it up, because a DRO can be cancelled if your financial circumstances change. If your spare income rises above the limit, you may need to switch to another solution, such as a payment plan.

Should I choose a DMP, DRO or IVA if I own my home?#

You can't get a DRO if you own your home. A DMP or an IVA may suit, depending on your surplus and how much equity you have; an IVA may look at the home's value. Get free advice before choosing, because these decisions are hard to undo.

Keep reading

Sources

  1. GOV.UK: Options for dealing with your debts (DMPs, IVAs, DROs, Breathing Space)
  2. GOV.UK: Applying to become bankrupt
  3. GOV.UK: Search the bankruptcy and insolvency register
  4. National Debtline: Debt management plans – comparison with IVAs and DROs
  5. Principles for the Reporting of Arrears, Arrangements and Defaults at Credit Reference Agencies (with ICO foreword)

Figures checked against these sources on 6 October 2026. If a rule changes, we update the page and its date.

General information, not personal financial advice. Rules depend on your circumstances; check the official source or speak to a regulated adviser before acting.