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Debt management plans (Scotland)
This fact sheet covers Scotland. We also have a version for England & Wales if you need it.
This fact sheet tells you what a debt management plan (DMP) is and how it may help you to sort out your payments to any non-priority debts you may have.
Use this fact sheet to:
- see who is eligible for a DMP through National Debtline (NDL) or Business Debtline (BDL);
- understand how a DMP works; and
- find out how to start to set up your DMP through NDL or BDL.
Can I have a DMP through NDL or BDL?
You may be able to have a DMP through NDL if you can:
- afford to pay at least £5 to each of your debts every month; and
- repay your debts within 10 years.
In Scotland, a debt payment programme under the Debt Arrangement Scheme (DAS) is usually a much better option than a free debt management plan because, for example, interest and charges automatically stop. You also include priority and non-priority creditors and you are protected from creditors taking enforcement action. See our Debt payment programme under the Debt Arrangement Scheme section.
How does a DMP work?
First you need to put together a budget sheet to see whether you have enough available income. You can use our online budget tool Your budget to create a personal budget or our self-help pack which includes a paper budget sheet and a guide on how to complete it.
- Add up all your household income. Then add up all your essential expenses, like rent, mortgage, household bills, food, travel, child care.
- Take the second figure from the first.
- What you have left over is your available income to pay your debts.
Are you self-employed?
If you are self-employed you will need to complete a business and household budget sheet instead. Contact Business Debtline on 0800 197 6026 or see www.businessdebtline.org for help and advice.
Is it the best option for me?
A DMP is a good option for people who can afford to make regular payments to their creditors and want an easy, hassle-free way to pay. We look at all your options with you so that you can make the best choice.
We can also advise you about alternative options such as bankruptcy and trust deeds. We can give you more information about other self-help options.
You should also look at the later section Debt payment programme under the Debt Arrangement Scheme because joining this scheme can stop creditors enforcing their debt and freeze interest.
Debt payment programme under the Debt Arrangement Scheme
You may be able to apply for a debt payment programme under the Debt Arrangement Scheme (DAS). This is a way of putting your debts together and making one monthly payment that you can afford. This is paid to an approved payment distributor who sends the money to your creditors for you. See our Debt Arrangement Scheme (DAS) fact sheet for more information.
This will be particularly useful to you if some of your creditors have refused to negotiate with you or have turned down your offers of payment.
If you keep to the agreed payments under the debt payment programme, your creditors cannot go to court or take any enforcement action against you such as diligence.
Your creditors cannot make you bankrupt.
If your creditors have taken court action against you, a debt payment programme will cancel most forms of diligence (enforcement action) such as arrestment of your bank account, or an earnings arrestment.
You can exclude rent arrears, mortgage arrears and secured loan arrears, if that is what you want to do. For instance, you may already have an arrangement to repay your rent arrears with your landlord, or to repay your mortgage arrears and secured loan arrears agreed with your lender. An excluded debt will be noted in the debt payment proposal.
DAS also freezes interest, fees and charges on your debt, from the date that you apply for your debt payment programme. A debt payment programme may be a good option for you if your creditors are threatening to take further action. Contact us for advice.
Business Debt Arrangement Scheme (BDAS)
Certain types of business can also apply for a debt payment programmes through BDAS. If you are a self-employed sole trader, you should apply to DAS as an individual, not to BDAS as a business. See our Business Debt Arrangement Scheme (BDAS) fact sheet for more information.
Interest and DMPs
Creditors do not have to freeze interest under a DMP. The debt management company will have to persuade each creditor that it makes sense for them to freeze interest and charges to avoid the debt increasing.
You may come across companies who offer to arrange a DMP for you if you pay a fee. These companies will also charge you a monthly fee for as long as you have a DMP with them. Be very careful about agreeing to get involved with these companies because there is no need for you to pay for a DMP.
If you ask us to help you to set up a DMP we will not charge you for this help and neither will the DMP provider that we work with.
The DMP provider will use all of any payments you make to reduce your debt, but usually your creditors will make a voluntary payment to the DMP provider and we will receive part of this payment. We will use any payments we receive to support our ongoing charity work of giving help and advice to people with debt problems.
Under the rules in the Consumer Credit Act 1974, your creditors will usually have to keep sending you annual statements, as well as arrears and default notices in a set format. This will happen even when you are in a DMP. Don’t worry, this does not mean that there is a problem with your DMP. If you receive other letters from your creditors demanding payment, contact us for advice.
What do I do next?
If you are interested in a DMP phone us now on our freephone number, 0808 808 4000. When you ring, you can speak to an adviser who can give you more information about DMPs and advise you on your options.
Changing your DMP provider
If you are currently in a DMP but are being charged for it, you may want move to a free DMP.
We can set up a free DMP if you are eligible, or give you advice about other options that may be better for you. Contact us for advice.
What happens if I move?
If we agree to help you set up a free DMP, we will need some more information about your debts. Ask your previous provider to send you up-to-date balances, account numbers and reference numbers for all your creditors.
There will be a period of time when you are waiting to make your first payment on the new plan, and this may result in a delay in payment to your creditors. You need to let your creditors know that you have changed your DMP provider. It would be best to do this as soon as you receive your confirmation letter. Use our sample letter Hold action while you move your debt management plan with all of the creditors that have been included in your new DMP. Keep a copy of all the letters you send.
Your monthly payment to the new free DMP may not be the same, which means the payments to your creditors may change. If you receive any letters from your creditors, please call your new debt management company straight away to tell them what the letters say.
Generally, fee charging debt management companies keep your first monthly payment as a ‘deposit’, which is used to make your final payment on the plan. This can mean they keep your money for many years. Please read through your previous service agreement to see if this has happened. Ask the company to refund any money that is owed to you.
Rules and guidance
All fee charging debt management companies have to follow the rules and guidance given by the Financial Conduct Authority (FCA) in the Consumer Credit sourcebook (CONC). The guidance includes the following requirements.
- The debt management company is required to outline the circumstances in which you may withdraw from the contract and receive a refund. This must be in the terms and conditions of the contract.
- They must not make misleading claims such as ‘debts can be written off’ or ‘interest stopped’ when companies cannot guarantee creditors will do this.
- Consumers must be given adequate information before entering into an agreement. Contracts should state the nature of the service provided, total cost to the consumer, amount to be repaid and duration of the contract. Contract terms should be fair, legible and in plain language.
- Debt management companies must inform clients of the outcome of negotiations with creditors, as well as any action a creditor has taken, such as the issue of a default notice or the threat of legal action.
If you feel that the company has not followed these guidelines, you should ask for a full refund of your deposit in your closure letter.
Use the Cancel your existing debt management plan sample letter to close your account. You can also use this letter to complain and to list any rules that the debt management company has broken.
Add details of exactly what has happened if you need to, and ask them to reply within 14 days. If they haven’t replied within 14 days, copy the first letter and send it along with a covering letter that says ‘Please reply to the previous letter within 14 days, copy attached’.
Use our sample letter Hold action while you move your debt management plan with all of the creditors that have been included in your new DMP. Keep a copy of all the letters you send.
Your credit reference file
If you miss payments on a credit debt, this will be recorded on your credit reference file by your creditor whether or not you then set up a DMP. This will usually make it harder for you to get credit. Some creditors may also ask for a note to be put on your credit reference file to say you are on a DMP.
Should I use my pension to pay my debts?
Since April 2015, if you are 55 or over, you may be able to take money from your pension fund to pay your debts. Creditors shouldn’t pressurise you to do this. Taking money from your pension fund early can have a big effect on your financial future. You may also have to pay tax on some of the money that you take. Your entitlement to benefits could change, both now and in the future. If you are thinking about taking money from your pension, contact us for advice.