If you owe a certain amount of debt, such as credit card debt or personal loans, it can become very difficult to take initiative against it at times.
For a lot of people, debt management is not an easy process. However, there are debt plans out there with affordable monthly payments and flexible deadlines that make debt management a whole lot easier.
Without further ado, let’s get into debt management solutions and debt schemes in the UK.
What is a Debt Payment Plan?
A debt payment plan is an informal debt solution that allows you to pay your creditors monthly payments on your debts.
Also called a “debt management plan”, it is an informal payment scheme that does not have any legal issues associated with it.
There are other, legally binding debt solutions as well, both in England and Wales, and in Scotland. These include bankruptcy schemes, IVAs, DROs, and debt arrangement schemes, all of which may involve legal action.
What are Debt Arrangement Schemes?
A Debt Arrangement Scheme, unlike bankruptcy, an IVA, or a DRO, is a debt solution that is available only in Scotland.
The way it works is simple. It allows you to pay your debts back to your creditors in the form of monthly instalments.
It can be a very effective tool for your credit rating as well, if you know what you are doing. It can also take quite a toll on your credit score.
One very important thing you should be aware of is that a debt arrangement scheme does have a time limit. Once the time limit is over, your debts will be automatically paid off.
If you have any outstanding debts, they will be automatically paid off as well.
How does a Debt Arrangement Scheme work?
You can have a debt arrangement scheme set up by an organization that is authorised and regulated by the financial conduct authority (FCA).
You have to go to a registered organisation to get a debt arrangement scheme approved.
The company may look at your credit rating, your financial history, your borrowing history, and how responsible you are as a buyer.
Once the company decides that you’re a worthy investment, they will have your debt arrangement scheme DAS set up.
Different companies charge different fees for setting a DAS up. Here’s a bit of debt advice: you can find companies that set up a debt management plan or a DAS for free. Try to look around and find companies that will set your DAS up for free.
Debt Arrangement Scheme (DAS) – Pros and Cons
A DAS comes with a unique set of advantages and disadvantages. Some of these are addressed below:
|A DAS allows you to pay your debts back as monthly instalments instead of a lump sum payment, making it much easier to handle.||When your DAS is approved, your name and details will be placed on the DAS register. It can be viewed by anyone.|
|Any amount of interest or charges on your debt will be frozen when your DAS is approved.|| 2. When you’re engaged in a DAS, the DAS will appear on your credit file for a period of six years.|
Regardless of whether you pay it back early or not, it will still appear on your file.
|A DAS prohibits your creditors from pursuing legal action against you.||3. If you’re not making payments on your DAS, your creditors can take you to court and pursue action against you.|
|A DAS can help you improve your credit rating if you keep making regular payments on your debts.|
|You can apply for a payment break if you come across circumstances when you can’t make your payments.|
FAQs – Frequently Asked Questions
- Do management plans hurt your credit?
Yes, they definitely can. Management plans can take quite a toll on your credit rating if you don’t keep making payments regularly on your plan.
If you miss payments, you’ll be seen as an unreliable borrower and a risky financial stakeholder. However, if you keep making regular payments on your plan, you can gradually improve your rating and convince creditors that you are a responsible borrower.
- Am I eligible for an Arrangement Scheme?
If you’re a citizen of Scotland and you have debts to pay, you are eligible for a DAS. You can get in contact with an agency and have them set your plan up.
If you don’t have a criminal offense pending, you are most likely eligible for a DAS.
- Can I pay off my Arrangement Scheme early?
Yes, it is entirely possible to pay your DAS off early. If you happen to come across a lump sum of money that you can pay to your creditors and pay off your DAS early, there definitely are advantages to doing so.
However, do note that if you pay it off early, it will still appear on your credit file for a total of six years. Creditors who look at your credit history will still be able to see it listed, even though it will technically be listed as a plan that has been paid off.
- Is an Arrangement Scheme a good idea?
It can be, depending on why you’re getting one and if you know what you are doing.
For one, the plan can help you manage your debts a lot better than you would be doing without it. The monthly instalment schedule is pretty convenient and easy to follow for most people.
Moreover, it prevents your creditors from pursuing you and chasing you around to recover what you owe them. You can even improve your credit rating if you work on it diligently.
However, there are a few downsides to getting a plan as well, such as a hit to your credit score, future issues with lenders, and more.
- How long does a DAS stay on your credit file?
Under normal circumstances, it will stay on your credit file for a period of six years from the point when it was first approved.
Regardless of whether you pay it back early, it will stay there and creditors and other parties will be able to see it.
Once the six years are done, it will be removed from your credit file.
Wrapping it Up
A DAS is a useful insolvency solution that you can apply for if you live in Scotland.
This debt advice was meant to help you understand more about what a debt payment programme is, how you can pay your debts back easily, how you can make use of a DAS, and how you can use it to get out of debt easily.
If you need more debt advice, feel free to reach out.