The government said the funding secures the future of the face-to-face debt advice programme for 2011/12, enabling debt advice to be provided by Citizens Advice Bureaux and independent advice agencies in England and Wales.
It comes after news that the Treasury will be cutting the Financial Inclusion Fund, a vital funding source for Citizens Advice, leaving the bureaux facing mass redundancies.
Secretary of state for business Vince Cable said: “While the government has maintained funding for this programme, it provides only a small part of the revenue necessary to keep the Citizens Advice network fully functioning.
“I would like to take this opportunity to call on the other funding streams, such as from local authorities, to help provide whatever support they can to keep this excellent service going.”
The coalition government’s initial agreement pledged that the state would take action to help people to manage their own debts.
A statement from BIS and the Treasury said ministers have been looking for new ways to encourage debtors to seek this support in its call for evidence on consumer credit and insolvency.
The government has already asked the Consumer Financial Education Body (CFEB), soon to be known as the Money Advice Service, to deliver a free national financial advice service.
Financial advice will be available face to face, over the phone and online, and aims to increase levels of financial literacy and empower consumers to take charge of their finances.
The service will include an annual financial healthcheck, which will provide people with a holistic overview of their finances and include a personalised action plan. The healthcheck will be available in the spring.
Financial secretary to the Treasury Mark Hoban said: “I am very happy to be able to confirm the continuation of this important service. Effective debt advice can be the first step towards regaining control of your finances.
"The government intends to put the provision of debt advice onto a more sustainable footing. We want to see a flexible and cost effective response to debt problems, so that people can be helped in a way that works for them.”