Nobody intentionally gets themselves into debt, but it can happen. The increased cost of living and the pandemic means many people have outstanding loans, mortgage arrears, and credit card payments.
According to The Guardian, personal debt continues to be a problem in the UK. In fact, the households in the study reported that their average monthly debt repayment was £373 in 2021.
The biggest issue with debt repayments is the interest rate, and it can often feel like you’re taking two steps forward and then one backwards. Luckily, debt repayment plans are in place to protect people from rising interest rates, and these schemes do help.
While an individual voluntary arrangement scheme offers many benefits, residents of Scotland can also use the debt arrangement scheme. It’s only suitable for residents of Scotland, but the scheme could help you save a lot of money.
What is the Debt Arrangement Scheme (DAS)
The Scottish government introduced the debt arrangement scheme as a way for people to repay their debts without dealing with angry creditors. In many ways, the plan is similar to an individual voluntary arrangement because you make one payment each month.
Once you pay into the scheme, the set amount goes to your creditors, and you continue with the payments until you no longer owe any money.
An interesting component of the scheme is the fact that two people can enter into a repayment plan, as long as:
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They’re civil partners, married or cohabiting
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Both parties are liable for one of the debts owed
As there’s no minimum threshold for the amount of debt you have, these schemes are popular with Scottish residents. But is the debt payment programme right for you?
The Benefits Of The Scottish Debt Payment Programme
The programme has many benefits, but it ultimately depends on your circumstances. Here are some of the key advantages.
It won’t impact your employment options
While filing for bankruptcy or using trust deeds (IVA) restrict your employment options, the debt arrangement scheme doesn’t. It won’t stop you from applying for certain jobs, such as banking, insurance, accountancy and other jobs that are usually impacted by debt repayment programmes.
You won’t have to deal with creditors or bailiffs
In Scotland, a person can send an application to the Accountant In Bankruptcy. If they approve the request, creditors cannot recover any money owed from the bank account. The order, also known as a moratorium, usually lasts for six months,
You can only use a moratorium if your income drops or you’re unwell, but your creditors won’t be able to access your account during this time. This gives you time to set up the scheme without worrying about higher debts.
Any debt charges or interest will stop
When you enter into a DAS, you no longer have to worry about your creditors, as long as you make your payments on time.
You can include unsecured debts
Unlike many debt repayment schemes, you can include unsecured debts in your plan.
Common debts include:
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Personal Loans
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Utility Bills
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Council Tax Arrears
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Catalogue Debt
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Store Cards
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Payday Loans
What About The Disadvantages?
As with most debt repayment solutions, there are some disadvantages. Here are some disadvantages you should be aware of.
Lower credit rating
When you enter into the scheme, you have the opportunity to pay off your debts, but it will impact your credit report. If you want to get a mortgage or loan in the future, you might find credit reference agencies check your score and the provider refuses it.
However, you’re already in debt, so your credit history will be poor. If you pay off your debts, you can build your credit file back up in the future.
You’ll have to make monthly payments
A debt arrangement scheme means you pay money into it each month, and then that money is split among your creditors. While affordability is always a consideration, you’re legally required to make those payments.
Some people prefer to file for bankruptcy because they can write off their debts, but the long term implications on their credit file are severe. With DAS you have a chance to build up your credit score and fully recover from your debt problems in the future.
It doesn’t guarantee the safety of your home
While a DPP can help you recover from your debts owed and give you some breathing space from creditors, it doesn’t necessarily protect your home. Both renters and homeowners can face issues with their mortgage provider or landlord.
If you’re in rent arrears or mortgage arrears, the landlord or mortgage provider will still be able to take possession of the property.
Things To Consider Before Entering Into A Debt Payment Plan
As with all debt repayment schemes, there are some definite disadvantages to the DAS, but it also has many advantages. If you want to be able to pay off your debts and rebuild your credit rating, this scheme could be ideal for your needs.
The duration of your payment plan
The duration of your payment plan depends on numerous factors, including the amount of debt you owe, how much you can afford each month and what the Accountant in Bankruptcy is willing to offer.
There’s no set time, but these plans won’t last more than ten years. Also, you can request to change your monthly payments if you get a job to make your debts quicker.
Your creditors
If you want to enter into a debt arrangement scheme, you’ll need to make an appointment with a DAS approved money adviser to discuss your options. Your creditors will have to agree to the arrangement, and they usually pay an administrative fee.
In rare cases, creditors might refuse. But their main priority is recovering your debts, so most will agree.
Your stability
While the DAS is one of the more flexible debt solutions, you have to make your monthly payments on time. If you’re unsure of your monthly income or have periods of illness, it might be better to consider an alternative debt solution.
There is some flexibility, though. If your income drops, you can apply for a six-month payment break or crisis break for one month. However, you can only use the crisis payment break twice a year, and it has to be for a good reason – not because you want a holiday!
What Are The Alternatives To The Debt Arrangement Scheme?
If you’re not sure whether the DAS is suitable for you, there are some alternatives. However, no debt payment programme is perfect, and you should always choose one that gives you options for the future.
Sequestration (bankruptcy)
If you have debts that amount to more than £3000, you can file for sequestration. Another option is applying for Minimal Asset Process, which will write off your debts as long as you have limited assets and no disposable income.
The threshold for the Minimal Asset Process is debts of £1500 or more, so many see it as an alternative route into bankruptcy.
While bankruptcy might seem like an easy way out, you need to consider its impact on your future.
Set up a voluntary agreement with the people you owe debts to
If you’d prefer to have more control over repaying your debts, you can approach your creditors to agree on a repayment plan. However, if you can’t make the repayments, your creditors will take action.
Also, it’s a daunting task, and many people prefer to use a specialist debt advice service.
Use the protected trust deed
Also known as an individual voluntary arrangement, the protected trust deed leaves your finances in the hands of a trustee who will deal with your creditors. You’ll make regular payments over four years and then be able to rebuild your credit file.
While this arrangement has many benefits, your debts must be more than £5000, and you’re entering into a legally binding contract.
Would You Like To Discuss Your Debt Payment Plan Options?
There are so many options to consider, but the vital thing to remember is that you can use debt management solutions to repay your creditors and recover your finances. We specialise in helping people pay off their debts and find some common ground with their creditors.
If you’d like to talk to our friendly team for confidential advice, we’d love to help you.