Debt management plans in Scotland
A debt management plan is an informal way to repay your debts at an affordable rate. In Scotland it sits alongside DAS, which gives legal protection a DMP does not.
A debt management plan (DMP) is an informal agreement to repay your non-priority debts with one affordable monthly payment, which a provider shares between your creditors. It is not legally binding, so creditors do not have to freeze interest or stop contacting you. In Scotland, the Debt Arrangement Scheme (DAS) offers a legally binding alternative that many advisers prefer.
How does a debt management plan work?
You make one monthly payment to a DMP provider, and the provider shares it among your creditors. The payment is based on what you can afford after your essential bills. The provider asks each creditor to accept a lower payment than your original agreement.
Because a DMP is informal:
- creditors do not have to agree, and each one decides for itself
- interest and charges may carry on, so the amount you owe might go down more slowly than you expect
- creditors might keep contacting you, or refuse to co-operate
- you can cancel at any time, because you are not tied in for a minimum period
Which debts can go in?
A DMP is for non-priority debts: debts owed to creditors who have no special powers to make you pay, such as most credit cards and loans. Priority debts usually cannot be included. Citizens Advice Scotland lists these as:
- mortgage and rent
- gas, electricity and water
- council tax
- court fines
- maintenance arrears
- taxes
- TV licence
Priority debts matter more because those creditors have more power to make you pay. Deal with them first.
Do you have to pay for a DMP?
No. Some companies charge a fee for setting up and running a DMP, but there are several free providers, so there is no need to pay if you do not want to.
Firms that give debt advice must be authorised by the Financial Conduct Authority (FCA). Before you sign up with any provider, check it on the FCA’s Financial Services Register and ask:
- what it charges, and whether any fee comes out of your monthly payment
- how it will deal with your priority debts
- roughly how long the plan is likely to take
- whether it has looked at the Debt Arrangement Scheme for you, and why it thinks a DMP fits your situation
Our page on free debt advice in Scotland lists free services.
What are token payments?
A token payment is a small amount, often £1 a month to each creditor, offered when you have little or nothing left after your essential costs and priority debts. Some free services can set up a token payment plan with your creditors for you.
Token payments can take the pressure off while your situation changes, for example after losing a job or during illness. But:
- a creditor does not have to accept them
- a creditor can decide to take action to recover the debt, including court action and diligence (the Scottish term for debt enforcement, such as arresting your wages or bank account)
- interest and charges may still be added
- the full balance is still owed
Token payments work best as a short-term step. Get advice before offering them, so you know your priority debts are covered and you understand the other options.
Want to talk your options through? Tell us a little about your situation and a licensed insolvency practitioner firm will call you to go through every option, including ones that are not a trust deed.
May not be suitable in all circumstances. Fees apply. Your credit rating may be affected. Free, impartial advice is available from MoneyHelper and other services.
How does a DMP affect your credit file?
A DMP may show on your credit file. Some creditors ask for a note to be added saying you have a DMP, and that note can stay for a time after the plan ends. Creditors may also record missed payments, because you are paying less than your original agreement.
That makes new credit harder to get while the plan runs. On the other hand, Citizens Advice Scotland points out that a DMP you keep up with looks better on your file than unpaid debts or irregular payments.
A DMP is not recorded on a public register. The Debt Arrangement Scheme, trust deeds and bankruptcy all are.
DMP or DAS?
In Scotland, you have a choice that people in England and Wales do not: the Debt Arrangement Scheme. Citizens Advice Scotland says it will usually be better to use DAS instead of a DMP, because DAS gives you legal protection and guarantees that extra charges are frozen. National Debtline also says DAS is usually a better option in Scotland, because interest stops automatically.
| Debt management plan | Debt Arrangement Scheme | |
|---|---|---|
| Legally binding? | No | Yes, once approved |
| Interest, fees and charges | Creditors do not have to freeze them | Frozen from the date you apply, and written off when you finish |
| Enforcement action | No legal protection | Creditors cannot serve a charge for payment, start diligence or petition for your bankruptcy |
| Cost to set up | Free from some providers; others charge | Money advisers cannot charge you |
| Public register | No | Yes, the DAS Register |
| How to apply | Through a DMP provider | Only through a DAS approved money adviser |
Some people still choose a DMP, for example because they want an arrangement they can end at any time. An adviser can explain the trade-offs for you. Read more in our guide to the Debt Arrangement Scheme.
What other options are there?
If a DMP or DAS would take too long, or you could never realistically repay in full, other options may fit. An adviser needs to look at your whole situation.
- A protected trust deed is a formal agreement run by a licensed insolvency practitioner. If it completes, the remaining debts included in it are written off, but there are fees, your credit rating is affected for 6 years, and your name goes on the Register of Insolvencies.
- Sequestration (bankruptcy in Scotland), including the Minimal Asset Process for people with low income and few assets, writes off most debts on discharge but has serious effects.
- A moratorium gives six months of protection from most enforcement while you get advice.
- Debt consolidation means taking out new borrowing to pay off existing debts. Our guide to debt consolidation in Scotland explains the risks.
To see these side by side, read our comparison of Scottish debt solutions.
Official sources
Common questions
Do I have to pay for a debt management plan?
No. Some companies charge fees for running a debt management plan, but there are several free providers, so there is no need to pay if you do not want to. Before you sign up with any provider, ask what it charges and check that it is authorised by the Financial Conduct Authority.
Can creditors refuse a debt management plan?
Yes. A debt management plan is an informal agreement, so each creditor decides whether to accept reduced payments. They do not have to freeze interest or charges, and some may keep contacting you. This is one reason Citizens Advice Scotland says DAS, which is legally binding, is usually a better option in Scotland.
Can I cancel a debt management plan?
Yes. A debt management plan is not legally binding, so you are not tied in for a minimum period and you can cancel it at any time. If you cancel, you will still owe the debts and need another way to deal with them, so speak to an adviser before you stop paying.
How long can I make token payments for?
There is no set period. Token payments are meant as a short-term measure while your situation improves or while you get advice. A creditor does not have to accept them and can decide to take action to recover the debt. The full balance is still owed, so an adviser will usually look at a longer-term option.
Related guides
- The Debt Arrangement Scheme (DAS) Repay your debts in full through one payment, with interest and charges frozen.
- Debt consolidation in Scotland What a consolidation loan is, its risks, and how it compares with Scottish debt solutions.
- Free debt advice in Scotland Free, impartial debt advice services in Scotland, with phone numbers and opening hours.