Debt Arrangement Scheme or Debt Management Plan?

The process of choosing a debt solution might feel overwhelming at times, and reaching a final decision can be a huge challenge. If you live in Scotland, and feel that given enough time you could pay back all of what you owe, you might be weighing up the pros and cons of the Debt Arrangement Scheme (DAS) compared to a Debt Management Plan (DMP).

Below we outline the pros and cons of both, to help you decide which could be the best fit for your circumstances.

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Debt Management Plan (DMP)

What is a Debt Management Plan?

A DMP is an informal solution to unaffordable debt, meaning it is negotiated privately between you and your creditors, without legal action coming into play.

In a DMP, you arrange to pay your creditors lower monthly instalments, over a longer period of time. These payments are taken directly from your bank account and allow you to pay back all of what you owe.

Some creditors may agree to freeze interest and fees on your debts to help you do so, but this is by no means guaranteed. You can establish a DMP in a few different ways – by negotiating with each of your creditors yourself, using the assistance of a debt charity, or by paying a private firm to set up the plan.

Who is eligible for a DMP?

There isn’t a strict set of eligibility criteria for Debt Management Plans, however the people who benefit most tend to owe money in unsecured debt to multiple creditors, and have a reasonable amount of surplus income which could be paid to your creditors each month, and feel able to repay what you owe in full.

Since creditors are not obliged to freeze interest and fees during the course of a DMP, this type of plan is a better fit for people with higher levels of disposable income. You will likely be expected to pay more each month than you would through the DAS.

Advantages:

The main advantage of a DMP is that, unlike formal debt solutions, it will not have a negative impact on your credit score, and could even have a positive one. This is because credit reference agencies and lenders will be able to see that you have made arrangements to pay back what you owe, and intend to do so in full.

Another advantage of a DMP is that, as an informal solution, a record of it will not be held anywhere, so you will have greater privacy. Depending on your creditors, DMPs can be fairly flexible, meaning you will most likely be able to increase or decrease your payments, or the length of the plan, depending on your circumstances.

Disadvantages:

A DMP’s disadvantages, ironically, also stem from the fact that it is an informal solution. Because the plan is not underwritten by any government legislation, your creditors are not obliged to freeze interest and fees on your debts, meaning that clearing them could be considerably more expensive than using a formal solution such as the DAS.

Because of this, repaying your debts through a DMP can also take considerably longer than through other solutions, which could prove frustrating. Finally, unlike with a DAS, your creditors will still be able to contact you throughout the DMP, meaning that the possibility of facing harassment for payment is not removed. Creditors can also decide to end your DMP at any time.

Debt Arrangement Scheme (DAS)

What it is the Debt Arrangement Scheme?

The Debt Arrangement Scheme is a programme designed to allow people in Scotland to repay unmanageable debt. The scheme is overseen by the Scottish Government and allows an approved money adviser to establish a Debt Payment Plan (DPP) tailored to your individual circumstances.

Under the legislation, your creditors are required to freeze all interest and fees on your debt for the duration of your DPP, and cannot take any legal action against you. The length of a DPP will vary, but will usually be under ten years, at the end of which you will have cleared your unsecured debts.

Who is eligible for the DAS?

As with a DMP, the DAS is a good option for people who have a reasonable amount of surplus income available, and would be able to repay their debts in full given enough time and the removal of mounting interest.

Because interest and fees are frozen in a DPP, the amount you need to be able to set aside for creditors will tend to be slightly less than for a DMP.

Advantages:

The main advantage of the DAS is that it removes the extra stress of interest payments and fees on your debts, making paying them off far more manageable.

Additionally, the DAS will protect your creditors from taking legal action against you, such as petitioning to make you bankrupt. This has the advantage of protecting your assets, which would otherwise be at risk from bailiffs if you regularly defaulted on your repayments.

Disadvantages:

The main drawback of the DAS is that, unlike a DMP, it will have an adverse effect on your credit score. This is because records of DPPs appear on a public online register, available for potential lenders and credit reference agencies to search.

Lenders will be able to see that you have paid back less in debt repayments than you originally intended, and resorted to a formal solution. This will lower your credit rating and can make getting further credit in the future more challenging.

Which is the best debt solution: Debt Arrangement Scheme or Debt Management Plan?

The best debt solution for you depends entirely on your financial circumstances. Everybody’s income, living costs, and financial flexibility are different, and debt solutions should always be tailored to a person’s situation if they are to be successful.

That said, there are some general rules of thumb to keep in mind if you’re choosing between a DMP and a DAS.

You might be better suited to a DMP if you:

• Owe unsecured debt to creditors
• Feel confident you can repay in full if given enough time
• Have a higher level of disposable income

You might be better suited to a DAS if you:

• Are interested in a legally-binding solution (including protection from creditors)
• Are willing to accept short-term damage to your credit score
• Have a reasonable amount of disposable income

Where can I get advice on the best debt payment programme for me?

When people take the difficult step of deciding to deal with their debt, they don’t then want to struggle over which debt solution is the best for them.

That’s where we can help. As a leading UK debt solutions provider, Creditfix has helped 250,000 people choose the debt solution that best suits their circumstances. We’d love to help you too.