When it comes to choosing a debt solution to help you deal with your money worries, the wide range of options on offer and the financial jargon used can mean that making a decision is often easier said than done.
For example, while both a DAS and a DMP can help you repay what you owe at a rate you can comfortably afford, they can affect your finances in different ways and make it difficult to borrow further credit for several years.
What is a DAS?
A Debt Arrangement Scheme (DAS) is a formal debt solution from the Scottish Government that can help you deal with your unmanageable debt by consolidating it into a single monthly payment.
The main aim of a DAS is to help you repay what you owe over a ‘reasonable period’ without the added pressure of being hassled by your creditors (the people you owe money to) for payment.
Under a DAS, you’ll work with a DAS-approved money adviser to set up a Debt Payment Plan or Debt Payment Programme (DPP). This is essentially a payment schedule clearly explaining your financial situation and how you plan to repay the debt.
The average DAS lasts six and a half years, but you’ll be expected to make payments until your total debt is repaid which can take up to 12 years.
Are you considering a DAS?
What is a DMP?
A Debt Management Plan (DMP) is an informal agreement between you and your creditors to repay your debt at a rate you can comfortably afford.
Because a DMP legally binding, you can apply through a debt solution provider or yourself and can choose to manage your payments on your own if you want to. This also means that neither you nor your creditors are legally bound to the terms of the DMP and are free to leave at any time.
Like a DAS, you’ll make regular payments towards your DMP until your total debt is fully repaid, which can take anything from five to 10 years.
What is the difference between DAS and DMP?
Despite sharing some similarities, there are several key differences between a DAS and a DMP that you should know about – especially if you’re considering either of them.
We’ve outlined them below:
Legal status
With a DAS, both you and your creditors will be legally bound to the arrangement and will be expected to stick to the terms and conditions outlined in the DPP. Failure to do so can result in the DPP being revoked and you’ll need to find another way to deal with the debt.
Because a DMP is an informal solution, you can arrange it with your creditors directly and don’t need a third party to manage your payments or handle communication. This also means that you can cancel it with little to no warning if it is no longer benefitting you.
Debts covered
A DAS can be used to repay most unsecured debts, such as personal loans, credit cards, council tax, overdrafts, catalogues, and utility bill arrears. A DMP, on the other hand, can also be used to repay most unsecured debt but doesn’t cover priority debts.
Generally, priority debts can be defined as debts that have the potential to leave you without the essential services you need to live, such as a roof over your head or energy to heat your home.
Average length
With a DAS, your payments will last however long it takes for you to pay all of your debts (excluding interest and charges frozen on the debt) and will be extended if you have a payment break. This means you could be making payments for up to 12 years, but the average length is six and a half years.
However, while a DMP will also end once you’ve repaid your total debt, you’ll also be expected to make up for the frozen interest and charges and this may mean your payment schedule is extended. The average length of a DMP is between five and 10 years.
Third party involvement
Because a DAS is a legally binding agreement, you can only apply through a DAS-approved money adviser, which is a money adviser authorised by the Accountant in Bankruptcy (AiB).
A DMP, on the other hand, is an informal arrangement, meaning you don’t need the help of a third party and can submit an application and manage your payments on your own if you want to.
Debt consolidation
With a DAS, your payments are set by a money advisor and will always be based on your income and expenditure and consolidated to an amount you can comfortably afford.
With a DMP, however, your monthly payments will only be consolidated if you go through a debt solution provider. For a self-arranged DMP, you’ll need to make individual payments to each creditor separately.
Interest and charges
When you enter a DAS, all interest and charges on the debt will be immediately frozen to allow you to focus on chipping away at your existing balance.
With a DMP, however, your creditors decide whether or not to freeze interest and charges and while a debt management company can convince them to do so, they’re under no obligation to do so.
Fees
Since 2019, money advisers have been banned from charging a separate fee for helping you apply for a DAS and can only take 10% of your debt from your monthly payments.
The fee for entering a DMP depends on the debt management company chosen. For example, while some companies charge a set fee or percentage of your debt, others provide DMPs free of charge.
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Will a DAS or a DMP have a bigger impact on my credit rating?
Unfortunately, your credit rating will be damaged regardless of whether you choose a DAS or a DMP.
For example, when you enter a DAS, it will be added to your credit file for at least six years. During this time, lenders will be able to see you’re making debt repayments and will be wary of entering into a new credit agreement with you.
Furthermore, your details will be added to an online database called the ‘DAS Register’, which is essentially a public list of everyone currently in a DAS. This can be accessed by anyone but is typically only used by lenders, landlords, and some employers.
A DMP, on the other hand, won’t appear on your credit file, but a marker will be added to your account that makes it clear that you’re repaying the debt through this particular debt solution. This may mean you still struggle to access most credit products, including a mortgage, loan, phone contract or bank account.
However, it’s important to note that while both a DAS and a DMP will affect your credit score, your credit score will already be damaged by the missed payments or defaults that led to you requiring debt help in the first place. Therefore, a DAS or a DMP will make little difference to your credit score overall.
Can I alter my payments with a DAS or a DMP?
With both debt solutions typically lasting several years, it’s not uncommon for your financial situation to get worse at some point during this time.
Despite being a formal debt solution, a DAS is designed to be flexible in the event your circumstances change. For example, if you lose your job, you can ask your money adviser to temporarily pause your payments (payment holiday) or permanently reduce them to an amount you can comfortably afford (variation).
Similarly, you’ll be expected to attend a yearly review of your financial situation on a DMP and, if your payments are no longer suitable, this can usually be changed so they better reflect your needs. Failing to attend your yearly review or stopping your payments with no explanation can result in your DMP being cancelled.
Conclusion
When it comes to choosing a debt solution, there are various factors to consider and you must do your research before making an informed decision.
From how long you’ll be expected to make payments to how much legal protection you’ll receive, a financial expert will be able to help you assess your personal insolvency options to ensure you make the right choice to deal with your debt.
Regardless of whether you choose a DAS or a DMP, your credit score will be temporarily damaged and you’ll struggle to get a loan or a mortgage for several years.
