How Does A Debt Management Plan Work?
You make one monthly payment to a provider, worked out from what is left after your household costs, and the provider divides it between the creditors in the plan until the debts are cleared.
A debt management plan is an informal arrangement rather than a statutory scheme. No Act of Parliament creates it, nothing prescribes its form, and it binds nobody by force of law.
- Part of your pay is protected by law
- The deduction is set by statutory tables, not the creditor
- An arrestment can be stopped or replaced
- Free & confidential
- No obligation
Thinking about a debt management plan? Get free advice on how it would work.
Free, confidential and no obligation.So there is no application to approve and no waiting list. What takes the time is getting accurate figures together, and what a debt management plan is covers the definition behind all of it.
The part that catches people out is what happens after the first payment. Creditors do not all reply at once, some accept and some do not, and letters keep arriving for a while.
What happens between the first conversation and the first payment?
Advice, a budget, paperwork, offers, then money. CONC 8.3.1R requires written pre-contract information in a durable medium before you commit to anything.
The stages in order
| The stage | What happens | The rule or the point |
|---|---|---|
| Advice and options | The adviser looks at your circumstances and sets out the solutions open to you in Scotland, including the statutory ones | There is nothing to approve, so nothing is granted |
| The budget | Income, essential spending and every debt are recorded | No form is prescribed, because a plan is not a statutory scheme |
| Pre-contract information | Written information in a durable medium about the service, the cost, cancellation and the effect on your credit file | CONC 8.3.1R |
| The contract | A written contract setting out the terms and conditions, including any right to cancel | CONC 8.4.1R and CONC 8.4.2R(5) |
| Offers to creditors | Each creditor receives the proposed payment with the budget behind it | No creditor has to reply, and none has to agree |
| The first payment | You pay one amount to the provider, which distributes it | Ask whether payments begin before every creditor has replied, because that varies |
CONC 8.4.1R says a firm must provide a customer with a written contract setting out its terms and conditions, and CONC 8.4.2R(5) requires that contract to set out the duration and conditions for exercising any right to cancel.
Nothing here is being granted to you
There is no approval stage, because nothing statutory is being applied for. The provider is negotiating on your behalf and the creditors are deciding for themselves.
That is the difference from every Scottish statutory route. How to set a plan up goes through the paperwork end of it.
How is the monthly payment worked out?
From your surplus. Household income minus essential expenditure gives the figure that is offered across the debts in the plan.
There is no prescribed form
A debt management plan is not a statutory scheme, so nothing prescribes how the budget is built or what allowances it must use. Different providers use different formats.
The prescribed tool is the Common Financial Statement, under regulation 15(1) of the Bankruptcy (Scotland) Regulations 2016.
That tool is prescribed for the statutory routes rather than for a plan. It is worth knowing why the form a money adviser produces looks different from a provider’s.
The two screening questions worth knowing
The free plan National Debtline refers clients to asks whether you can afford to pay at least £5 to each of your debts every month, and whether you can repay your debts within ten years.
If the answer to either is no, a plan is probably not the right shape of solution. How long a plan lasts sets out why the arithmetic decides it.
An optimistic budget is the usual cause of failure
A plan that leaves nothing for a car repair or a school uniform breaks the first time something goes wrong. Building in what your household actually spends is not padding.
Several debts and not enough money to cover them? Get free help
Free, confidential and no obligation.How is your payment split between your creditors?
No rule prescribes how the payment is split, and pro rata by balance is the usual method. Ask for your provider’s method in writing before you sign.
What the rules do and do not settle
What the rules do instead is require pre-contract information and a written contract, and give you a statement showing what has actually happened.
The pre-contract information a firm must give you under CONC 8.3.1R runs to fourteen numbered limbs and has to reach you in a durable medium.
Ask specifically for the allocation method in writing, because that is the number that decides which balance falls first. A creditor receiving more than its share is the thing another creditor objects to.
Why leaving a debt out causes trouble
A creditor that thinks it is being treated less favourably than the others is more likely to refuse. Which debts you can include covers what usually goes in and what stays out.
No creditor has to accept a debt management plan, and nothing requires one to give a reason for refusing.
A refusal does not end the plan
Payments still reduce the balance where a creditor has not formally agreed the arrangement. Whether creditors have to accept a plan deals with what happens next.
What is your provider required to do once the plan is running?
Five duties in one rule, and one more in another. CONC 8.8.1R sets out the running duties and CONC 8.6.1R adds the duty about advising you to stop paying a creditor.
The duties
| The duty | What it means for you | Where it comes from |
|---|---|---|
| Keep in contact and monitor your position | You should not be left alone for a year at a time | CONC 8.8.1R |
| Tell you the outcome of negotiations | Including where a creditor refused to freeze interest or charges accruing | CONC 8.8.1R |
| Review the plan | At the earlier of each anniversary, or as soon as the firm becomes aware of a material change | CONC 8.8.1R |
| Give you a statement | At the start of the plan, and at least annually or at your reasonable request | CONC 8.8.1R |
| Use reasonable endeavours not to send inaccurate information to lenders | Which is why the budget has to be right before it goes out | CONC 8.8.1R |
| Advice not to pay a creditor | Where a firm tells you to stop paying before a solution is agreed, it must be able to demonstrate that advice is in your best interests | CONC 8.6.1R |
The notification duty is the one people do not know they have. You are entitled to be told where a creditor refused to freeze interest or charges, and whether a plan freezes interest explains why no creditor has to.
The annual review is not optional
It happens at the earlier of each anniversary or the point at which the firm becomes aware of a material change. A change in your income is a material change.
For a Scottish client that review is also the moment to ask whether the Debt Arrangement Scheme or a statutory solution now fits better than the plan does.
If the provider is not doing any of it
Complain to the firm first, and then to the Financial Ombudsman Service. Being authorised is what makes that route available, which is one of the practical reasons to check the register.
What can your creditors do while the plan runs?
Everything they could have done anyway. A plan changes what you pay and it does not change their rights.
What they keep
| What a creditor can do | The position |
|---|---|
| Refusing the offer | Nothing requires a creditor to accept, or to give a reason |
| Adding interest and charges | No statute and no rule compels a freeze. Most creditors agree, and none has to |
| Defaulting the account | A default can be recorded even where the plan has been accepted |
| Selling the debt on | Permitted. The buyer must arrange for notice of the assignment to be given to you |
| Raising a court action | Nothing in a plan prevents one |
| Instructing diligence in Scotland | A plan has no statutory effect on any of it |
StepChange’s own client agreement says it plainly: creditors may continue collection activity including defaulting accounts, charging interest or other fees, or taking legal action, and the charity will try to but cannot prevent it.
Interest, and the rule that does exist
No creditor has to freeze interest because you are on a debt management plan. No statute requires it and no Financial Conduct Authority rule requires it.
What the Financial Conduct Authority does require is forbearance. Its rule at CONC 7.3.4, in force since 4 November 2024, says a firm must treat customers in or approaching arrears with forbearance and due consideration.
Suspending, reducing, waiving or cancelling interest is the first of the Handbook’s examples of what forbearance can look like. Those are examples in guidance rather than a duty to freeze.
If the debt is sold
CONC 6.5 contains two provisions, and the operative one requires the firm the rights are assigned to to arrange for notice of the assignment to be given to you.
The buyer of a consumer credit debt is itself carrying on a regulated activity, and CONC 7.3 binds lenders, owners and debt collectors alike. What happens when a debt is sold covers the practical side.
What does a plan not do about enforcement in Scotland?
A plan does not stop enforcement. It has no statutory effect on diligence at all.
What that means once a creditor has a decree
An earnings arrestment is served on your employer with no further court step, and a bank arrestment can be executed. Whether a plan stops a wage arrestment is the page that answers this and sets out what does stop one.
StepChange puts the general point in one sentence: a plan is not based on Government legislation, so it does not protect you from legal action by your creditors.
And a council does not need a court action at all
For council tax arrears it applies for a summary warrant. Our council tax debt advice page sets out what follows from one.
That is why National Debtline’s Scottish guide treats priority debts separately from the credit debts a plan is built around.
If enforcement has already started
Setting up a plan is not the response to a charge for payment. Take advice on the enforcement first, because the routes that reach it are statutory and some of them are time limited.
How does a debt management plan come to an end?
Usually when the balances are cleared, and you can also stop it whenever you like. StepChange’s client agreement says you can cancel the agreement at any time, by letter, email or phone.
The ways it ends
| How it ends | What that involves |
|---|---|
| The balances are cleared | The ordinary ending, and the length is arithmetic |
| You cancel it | StepChange's own agreement says you can cancel at any time, by letter, email or phone |
| A full and final settlement is accepted | Get the acceptance in writing before any money is sent, and expect a partial settlement to be marked differently from a debt paid in full |
| You move to a statutory solution | The Debt Arrangement Scheme, a protected trust deed, a Minimal Asset Process or sequestration |
| The provider closes the plan | Read the contract, because the conditions for cancellation have to be set out in it |
| Payments simply stop | The debts do not stop. Creditors return to whatever they could have done anyway |
Length is arithmetic rather than a term. How long a plan lasts sets out what changes the answer, and interest that keeps running is the main one.
A payment break is not the same as a pause
StepChange’s own client page says it is not possible to get a payment break on a plan, and offers a reduced payment or a different solution instead.
Its marketing pages use the words start and stop, and stop there means cancel rather than pause. That is one provider’s position, so ask your own provider what it does, because no other provider’s policy is published.
Moving to something else
The annual review is the natural moment for it, and the Debt Arrangement Scheme is the Scottish route most plan clients have never had explained to them.
Free advice is available from Citizens Advice Scotland, StepChange, National Debtline and Advice Direct Scotland. What a plan is is the place to start if you are still deciding.
Frequently asked questions
How quickly can a debt management plan start?
There is no approval process, so the timing depends on how fast the budget and the offers are prepared. Ask your provider whether payments begin before every creditor has replied, because that varies.
Who decides how much you pay each month?
The figure comes from your budget: household income minus essential expenditure. Nothing prescribes the format, because a plan is not a statutory scheme, so the quality of the budget carries the whole arrangement.
Why does one creditor get more than another?
Because of how the provider allocates the payment, and no rule prescribes a split. Ask for the method in writing and check it against your annual statement.
Will you be told if a creditor refuses?
Yes. CONC 8.8.1R requires the provider to tell you what came out of the negotiations, including where a creditor refused to freeze interest or charges accruing.
How often is the plan reviewed?
At the earlier of each anniversary of entering into it, or as soon as the firm becomes aware of a material change. A change in your income counts as one, so tell the provider before the payment date.
Can you take a payment break?
StepChange says it is not possible on its plans and offers a reduced payment or a different solution instead. No other provider’s policy is published, so ask yours directly.
Can you run a plan without a provider?
Yes, by sending your own budget and offers to creditors. The Financial Conduct Authority’s definition of a debt management plan assumes a third party administers it, so a direct arrangement is doing the same thing under a different name.
Does paying under a plan affect how long a debt can be chased?
In Scotland an obligation can be extinguished after five years without a relevant claim or acknowledgment, and a payment is an acknowledgment. If any of your debts are old, take advice before paying on them.
Related guides
- What Is A Debt Management Plan? What informal means in practice, which debts go in, what happens to interest and creditor contact, and what a plan cannot do in Scotland.
- How Is Your Monthly Payment On A Debt Management Plan Worked Out? How your disposable income is worked out, how the surplus is divided between creditors, whether a minimum applies, and what fees do to it.
- How Do You Set Up A Debt Management Plan? What to have ready, whether to use a provider or do it yourself, the steps in order, and what to check in the paperwork before you sign.
- Which Debts Can You Include In A Debt Management Plan? The unsecured credit a plan is built for, the priority debts that stay outside it, and why council tax works differently in Scotland.
- Do Creditors Have To Accept A Debt Management Plan? Why a plan rests on goodwill, what a creditor weighs up, what agreeing does and does not stop, and how consent works under the DAS.
- Does A Debt Management Plan Freeze Interest And Charges? Why nothing forces a creditor to freeze interest, which debts the FCA rules never reach, and what to do when a creditor keeps charging.
- How Long Does A Debt Management Plan Last? There is no set term. What decides the length, how unfrozen interest moves the end date, and how a plan can be finished early.
- Are Debt Management Plans Free Or Do They Charge Fees? Which providers charge nothing, how the free ones are paid, what a fee takes off your balance, and how the Debt Arrangement Scheme compares.
- Does A Debt Management Plan Stop A Wage Arrestment In Scotland? Why an informal plan has no effect on a running arrestment, what does stop one in Scotland, and what a statutory moratorium covers.
- Can Creditors Sell Your Debt While You Are On A Debt Management Plan? Why debts are sold, what changes and what does not, who has to tell you, and whether a buyer can add interest or charges to the balance.
Written as general information about Scottish debt law rather than regulated financial or legal advice, and your own circumstances may change the answer. Free, impartial help is available from Citizens Advice Scotland, StepChange, National Debtline and Advice Direct Scotland.