7 Reasons a Debt Arrangement Scheme is Better than a Debt Management Plan
Swamped in debt and trying to figure out what you can do to try and pull your life back on track? Odds are by now you’ve looked into a debt management plan (DMP), and may have checked into a Debt Arrangement Scheme (DAS). Many customers are largely unaware that Debt Arrangement Schemes exist, however, and may be tempted by a DMP when a DAS would be a better option.
What is a DAS?
As with a debt management plan, a Debt Arrangement Scheme is an agreement you enter into with your creditors with the goal of fully paying off your debts. The objective is to reduce your monthly dues to amounts that you can afford. This allows you to catch up without worrying about your entire life falling apart all because you’re trying to pay off your debts.
The primary difference between a DAS and DMP is this:
A DMP is an informal arrangement you make directly with your creditors. The DMP is overseen by a case administrator working for a debt advice organisation.
A DAS is a formal arrangement which is legally binding. You must go through an Approved Money Adviser or Insolvency Practitioner in order to get set up. When you set up a debt payment programme (DPP) for a DAS, your creditors can no longer contact you.
You can read our full Debt Arrangement Scheme Guide here.
What Does the FCA Say About Debt Management Plans?
According to the Financial Conduct Authority (FCA), debt management plans are not providing customers with what they need to recover from their debts. It isn’t that debt management plans are not a good option for some; the problem is that many debt management firms were guilty of pushing them on customers who would benefit more from a DAS.
For example, there was one customer who reportedly spoke to an adviser about debt solutions who was worried about losing her car. The adviser pushed her toward a DMP which would take 125 years to pay off. Worse, they didn’t bother to mention that another debt solution like a DAS might be more beneficial.
There are some English, Welsh, and Northern Irish customers who may benefit more from a DMP, but a DAS is the best choice for the vast majority of Scottish debtors. Why? Let’s break down the reasons.
1. A DAS is a formal plan, which means there is more oversight in place to protect you.
This by itself is a huge factor in favour of choosing a DAS instead of a DMP. When you sign up for a debt management plan with your creditors, there is nothing legally binding about your agreement. That means there is limited government oversight to protect your interests. With a DAS, you are signing a formal, legal contract. You are bound to it, as are your creditors. Your interests are protected.
Some people get nervous about signing a formal contract like a DAS because they know that if their financial circumstances take an upturn, they could be required by law to pay more each month to their creditors. But look at it this way. You’ll get your debts paid off faster. Plus, what if your circumstances get worse? On a DMP, there are no guarantees your creditors won’t just drop you from the plan and take legal action against you. With a DAS, the plan can be renegotiated so you can continue making payments you can afford.
2. A debt management plan may not protect your home or car, but a DAS can.
This is a big deal, and goes back to that story from the FCA. Remember that woman who was scared of losing her car on a formal plan, so her adviser tried to talk her into a DMP that would take longer than her lifetime to pay off?
Well, as it turns out, that woman would have been just fine on a DAS. Property such as a home or car can be protected under a DAS. As an informal solution it is possible for your creditors to take action against you and your property. They could apply for an inhibition order for example. This could result in your debt being linked to your home. With a DAS, so long as you are keeping up with your payments on your home or car, they will be protected.
3. A DAS will freeze your interest; a debt management plan will not.
If you opt for a debt management plan, your creditors may decide to stop charging you interest, penalties and fees. In fact, most of them will—but there is no legal requirement for them to do so.
That means that your creditors are free at any time they wish to start charging you those additional costs again. Some creditors may never agree to stop charging them in the first place.
If you sign up for a Debt Payment Plan (DPP) via the Debt Arrangement Scheme (DAS) on the other hand, you can freeze your interest, penalties and fees. So long as you continue to make your agreed-upon payments on time, you will never have to deal with those nasty surprises again. That by itself can be a huge burden lifted!
4. Unlike a DMP, a DAS will protect you from calls from your creditors.
When you are on a DPP through a DAS, the harassment from your creditors will stop. You will work directly with your adviser and never have to deal with another phone call, email, letter, or in-person visit again for the duration of the DAS. What a relief, right?
You won’t get this kind of privacy and peace of mind when you are on a DMP. In fact, it is quite likely that your creditors will be in frequent contact with you, especially in the first several months of the plan. For many customers, ending this contact is part of what makes it possible to quit worrying and get back to the business of actually enjoying life.
5. A DAS is much more predictable than a DMP, and has a fixed end date.
You can use a DAS for personal or business debts. For personal use, a DAS can last up to ten years (as long as you need to pay off on all your debts), while it is limited to a maximum of five years for a business. But what is important here is that the term length for the programme is fixed when you enter into the arrangement. You will know exactly what you are getting into right from the start.
There is no fixed end date for a DMP on the other hand, and it could be a very long time before you see the end of the tunnel, especially if your creditors decide to throw interest and fees your way. You have no idea how long it will be before you finally get the clean slate you are working towards.
6. With a DAS, there is flexibility built into your plan, and creditors cannot make arbitrary changes.
With a debt management plan, there is really nothing to stop your creditors from making abrupt and unfriendly changes to your agreement. Since it is not legally binding, you have no power to protect yourself.
If on the other hand you sign up for a Debt Arrangement Scheme, you are entering into a binding agreement, and that means that creditors cannot arbitrarily make changes to the agreement without your permission. There is always a negotiation process. At the same time, the DAS provides enough flexibility that you can switch to larger or smaller payments should your income change in the future. Should you need to take a break from payments altogether, in some cases a 6 month payment holiday may be granted while you get back on your feet.
7. Your creditors cannot take legal action against you with a DAS. A DAS may also cancel out previous action.
Another huge advantage of a DAS over a DMP is the fact that your creditors cannot take you to court, bankrupt you, or take any other legal action against you so long as you are up to date with the payments you have agreed to make under the DPP. Indeed, if your creditors have already taken such action against you, the DPP will cancel most enforcement actions. That means you’ll get control over your earnings and bank account again, and will no longer have to fear that your wages or savings will be seized at a moment’s notice. A DMP provides no such protection.
Other There Any Disadvantages to a DAS?
With Debt Arrangement Schemes offering so many clear benefits over DMPs, you may wonder if they have any significant drawbacks. There are a few, but on the whole, they shouldn’t concern you any more than a debt management plan:
- Your credit rating will take a hit with a DAS, but this is the case with a DMP as well.
- If you fail to complete the DAS, you may find all that interest added right back onto what you owe. Of course, with a DMP, that interest could show back up at any arbitrary time, even if you are keeping up with your payments.
- You need to repay your debts in full. This would be the case with a DMP as well, so if you are looking for debt relief, you would be better off considering a Protected Trust Deed in Scotland, or Bankruptcy (Sequestration in Scotland).
- The Debt Arrangement Scheme is not available in England. Alternatives include DMPs, IVAs or Bankruptcy.
- Your name will be recorded in a public register when you participate in a DAS.
Debt Arrangement Schemes Are the Best Choice For Those Who Qualify
With so many advantages and so few drawbacks, why don’t more debtors choose the Debt Arrangement Scheme? Going by the FCA’s reports, the fault lies with debt management firms which are giving customers incomplete information and in many cases steering them towards debt management plans.
Here at Carrington Dean, our top priority is to help you get back on your feet as quickly and affordably as possible. We can look over your financial situation and help you figure out if you may qualify for a Debt Arrangement Scheme. If you do, we can set it up for you. And if not? We can point you in the direction of other debt solutions which may be a better fit. Call us today at 0141 221 2323 to speak to a friendly debt adviser.