Debt management plans (DMPs)

 February 2017

Fact sheet no. 20 SCOT Debt management plans (DMPs)

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 plan works; and
  • find out how to start to set up your DMP through NDL or BDL.

Extra advice:

Debt Arrangement Scheme

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. 

Who can have a debt managment plan (DMP) through NDL or BDL?

Anyone who answers yes to these two questions.

  • Can you afford to pay at least £5 to each of your debts every month?
  • Can you repay your debts within 10 years?

How does a debt management plan (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 budget or our self-help pack which includes a paper budget sheet and a guide on to how to complete it.

Extra advice:

are you self-employed?

If you are self-employed you will also need to complete a business budget. Contact Business Debtline on 0800 197 6026 or see www.businessdebtline.org for help and advice.

  • Add up all your household income. Then add up all your essential expenses, like rent, mortgage, household bills, food, travel and child care.
  • Take the second figure from the first.
  • What you have left over is your available income to pay your credit debts.

Is a debt management plan 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 CASHflow and the 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 all 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.

  • 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.

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. Contact us for advice.

DMP fees

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.

Information:

annual statements

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.

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 payment 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.

What do I do next?

If you are interested in a DMP and you are a first time caller, phone us now on our freephone number. When you ring, you can speak to an adviser who can give you more information about DMPs and advise you on your options.

If you have called National Debtline before and we have advised you that a DMP is a good option for you, please call our freephone number 0808 808 4000.

If you have called Business Debtline before and we have advised you that a DMP is a good option for you, please call our freephone number 0800 197 6026.

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.