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Which type of payment plan is right for me?

Posted 13 August 2012

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Certain debt solutions could help you by offering a more manageable payment plan.

You may have heard that certain debt solutions work by giving you a payment plan designed to make repaying your debts more manageable. You might also be wondering which kind of payment plan is right for you.

If you're a resident of Scotland, there are a couple of debt solutions with payment plans that could help you: Trust Deeds and the Debt Arrangement Scheme (DAS). Both have payment plans; DAS's is called a Debt Payment Programme (DPP). So how are they different?

DAS: Debt Payment Programme

If an approved Money Adviser decides that DAS is the best debt solution for you (i.e. you're struggling with your debts at the moment, but would still be able to clear them in a reasonable amount of time with lower payments), they will help you draw up a payment plan.

This is done by looking at your budget and seeing how much you have left over for unsecured debt payments after all your essential costs have been dealt with. This figure is then proposed to your lenders, and if they agree, your Debt Payment Programme can start.

During your DPP, interest and charges on your debts will be frozen and you'll be protected legally against your unsecured lenders: they won't be able to petition for your bankruptcy, ask for higher payments or take you to court, as long as you stick to your DPP as agreed.

Your DPP will last until you have fully repaid all of the debts included in it - unless your financial circumstances change. If you're left unable to meet your payments, you might need to take a different approach; and if your finances improve, you may be able to resume your original payments.

If you have any questions about DAS, you might be able to find the answer by clicking here.

Trust Deed

The payment plan on a Trust Deed is designed to help people who are really struggling with their debts, and doubt they'd be able to clear the full amount in a reasonable timeframe.

As with DAS, an expert (this time a qualified Insolvency Practitioner) will help you to work out how much you can afford to pay into your Trust Deed - again, after you've accounted for all your essential costs. If enough of your unsecured lenders accept the proposed terms, your Trust Deed will become protected.

During a Protected Trust Deed, interest and charges on those debts will be frozen and you'll have legal protection against your unsecured lenders.

A major difference between a DPP and a Trust Deed is the fact that after a certain amount of time, usually three years, unpaid debt in a Trust Deed will actually be written off - again, as long as you've made all your payments as agreed.

You can read more about Trust Deeds by clicking here.

Both DAS and Trust Deeds will damage your credit rating for up to six years, which will make it harder to obtain further credit in that time. It's worth bearing in mind, however, that struggling with your debts would also harm your credit rating, and could lead to more serious consequences too.

During your Trust Deed, you may also be asked to release equity in your home - but your home will not be repossessed as long as you keep up with your mortgage payments.

If you'd like to apply for either of these debt solutions - or you just have a few questions - click here and use the form to contact us.

by Christine Walsh

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To find out more about managing your money and getting free debt advice, visit Money Advice Service, an independent service set up to help people manage their money.