Disadvantages of a Debt Arrangement Scheme (DAS)
The DAS is a Scottish formal debt solution. It stands for the ‘Debt Arrangement Scheme’ and is only available to residents of Scotland. It has many similarities with a Debt Management Plan (DMP) as you propose a lower, affordable payment to your creditors based on your surplus income each month, or a Debt Payment Programme (DPP).
However, as a formal debt solution, your creditors can be bound to the agreement even if they object to it.
There are many similarities between the different debt solutions that exist in Scotland and understanding their nuanced differences can be tricky. To help you, we’ve outlined the key disadvantages of a DAS, particularly in relation to the key alternatives that are available to you – DMPs and Trust Deeds.
- Possible Fees
As you might imagine, working with a qualified money adviser to create, propose and manage your DPP costs money. There are two separate costs involved with the DAS. First, the advice which allows you to create and propose a DPP to your creditors and second, the management of the DPP in the following years as your adviser then has to collect and distribute your repayments.
The good news is that many advisers, from both charities and private companies, collect the costs of the DPP from your affordable monthly payments, allowing for the costs of the DPP to be absorbed by your creditors.
Nonetheless, a number of advisers choose to charge you the fees, rather than your creditors, and similarly, some advisers charge you for the first cost of setting up and proposing the DPP if it is then rejected. It is essential to agree how costs associated with the DPP will be paid before you agree to anything.
Trustees, who manage Trust Deeds, are usually paid in a similar fashion, while, a DMP could incur similar costs if you seek professional help. Unlike a DPP and Trust Deeds, however, you do not need professional help to set up a DMP so you can avoid these costs altogether by calculating the DMP and proposing it to your creditors yourself.
Seeking advice on how to do this is advised, however, as a failed attempt to organise a DMP might alarm your creditors and encourage them to pursue their debts further.
- Living On a Strict Budget For Longer
The most crucial disadvantage of the DAS is that it can drastically increase the length of time you are living with your debts. Although your fees and interest are frozen to make it possible for you to clear your debts, you are still expected to pay the entirety of your debt with a DPP. Smaller payments make this a much longer task.
For example, if Susan has a total debt of £10,000 and had minimum monthly payments totalling £277.77 but only £100 surplus income per month:
- She could propose a DPP that uses this £100 per month to pay off her debts
- Rather than repaying her debts in 3 years, she now has repayments planned for 8 years and 4 months, more than double her original time in debt.
- During this time, she is having to budget her life strictly and will have a limited chance to fund luxuries, such as holidays.
Debt Management Plans have a similar issue as they are very similar in design. However, in some cases the DMP could last even longer than a DPP as the DPP has legal protections to ensure they are ‘fair and reasonable’. This includes their length and some DPPs that would otherwise require repayment for over 10-12 years specify that payments stop after this time, allowing for some of your debt to be written off.
On the other hand, Trust Deeds, which similarly lower your monthly payments to suit your real monthly surplus income, limit repayment to 4 or 5 years. At this point, any remaining debt that you have is written off. This makes a Trust Deed a much faster alternative for clearing your debt than the DAS.
- Impact On Your Credit Score
All debt solutions can have an impact on your credit score and the DAS is no different. Your DAS is included in the public DAS register, which credit report agencies look at when compiling your credit report. Your credit report is used to determine your credit score, and both are considered when you apply for a loan. Having a DAS can, therefore, make some lenders less inclined to lend you further credit. If you think you are likely to need further credit, a DAS might not be for you.
Applying for a Trust Deed has a similar affect as Trust Deeds are also registered publicly. It is worth noting, however, that this impact could be for a reduced length of time. A Trust Deed is registered for 6 years but lasts 4, while a DPP is registered for a minimum of 6 years, but can last much longer. This means that if your DPP is longer than 6 years, it will affect your credit score for longer than a Trust Deed.
Conversely, a DMP is not added to a register and so does not affect your credit score in the same way. However, this does not mean there is no negative impact on your ability to take out further credit. Your creditors may record your DMP as a form of default, which is reflected on your credit report, and other records of missed payments or unreliable repayments could also hinder your ability to take out further credit. Consider asking your creditors how they will record your DMP to ensure you have as much control over your credit score as possible.
- No Debt Written Off
As already suggested, Trust Deeds often result in a larger proportion of your debt being written off after 4 years of repayment. DPPs are significantly less likely to have any debt written off. Up to 10% is usually technically written off the debt in order to pay your advisor, but this does not benefit you financially as you must still pay the full amount.
The only chance for your debt to be partially written off with a DPP is if repayment will last an unreasonably long period of time, such as over 12 years. Having any debt written off is even more rare for DMPs as there is no legal necessity for your creditors to freeze your interest or to put a time limitation on repayments.