Do your need a new Bank Account if you start a DMP?
One of the key things to understand about a Debt Management Plan (DMP) is that you retain control over your finances and income. You are still responsible for paying all your monthly living expenses as well as maintaining your regular Plan payments. You really need a bank account to help you do this. The question is will you be able to continue using your old account or do you need to open a new bank account? This will depend on whether you intend to include in your Plan any debt you owe to your old bank.
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Can you keep your old Bank Account if you start a Debt Management Plan?
Whether or not you can keep using your old bank account if starting a Debt Management Plan will depend on whether you want to include any debt you owe to the bank itself. If your bank is not included in the Plan there should be no problem with you continuing to use your old account. However if you want to include debt owed to it you should open a new bank account.
The reason for this is the rule of set off. This means if any of your accounts with the bank are in arrears they can automatically take money from your account to pay these debts. Accounts included in your Plan will automatically be in arrears. As such if you keep using your old account the bank will almost certainly take money from this without your permission leaving you short.
The only way to avoid set off is to stop using your old account and open a new one. The rule does not apply between different banks in different banking groups.
What kind of new Bank Account should you open if starting a Debt Management Plan?
There are two different types of bank account. These are either a Current Account or a Card Cash Account. If you have not yet missed any payments to your creditors and still have a good credit rating then you can open a Current Account. This allows all the usual facilities including a debit card. You may also be offered credit facilities although it may be best to decline these if you are starting a Debt Management Plan.
If you already have a poor credit rating you not be able to open a current account. In these circumstances the new bank account you should apply for is a Card Cash Account. This type of account can be opened even with a poor credit rating.
A card cash account will give you all the standard banking facilities such as being able to set up direct debits and standing orders however you will not be offered any credit facilities. You should be offered a debit card although not all banks offer this facility with their card cash accounts.
Which bank should you approach to open a new Bank Account?
If you need a new bank account before starting a Debt Management Plan it is very important to make the right choice about which bank to approach. You will need to choose one that is not in the same banking group as any of the banks which you are going to include in your Plan. This is because the offset rule can still apply between banks in the same group.
For example if you owe money to Lloyds you should not consider opening a your new bank account with Halifax or Bank of Scotland. All these banks are part of the same group (Lloyds Banking Group).
Secondly many banks will offer a debit card with their card cash account but not all. If you need to a cash card account you should chose a bank that will offer this with a debit card facility. Examples of banks which offer debit cards with their card cash accounts are Barclays, Co-Op and Halifax.
Should I apply for a Managed Bank Account if I am starting a DMP?
Certain debt management service providers offer something called a Management Bank Account. In the same way as a card cash account a managed bank account can be opened very easily if you have a poor credit rating. The managed account allows you to split your cash between a bills account and a general expenditure account.
If you are not good at budgeting a Managed Bank Account can help you ensure you always have sufficient cash to pay your priority bills and your agreed Debt Management Plan payment. However you will normally have to pay a monthly account fee of around £15.
There is generally no reason to open a managed bank account and pay the associated fees unless you know you will struggle to manage your money. If you open a new bank account with a normal high street bank it will be free and other than the ability to split your finds it will offer all the same facilities.
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