Debt Management Plan bank accounts

If you are starting a Debt Management Plan (DMP) one of the first things you need to think about is your bank account.

You will need a bank account when you are in a debt management plan. You will use the account to manage your income and living expenses budget which will be your responsibility. You will also use the account to make your monthly DMP payments.

However if you owe money to the bank where you already have your bank account, it is vital that you open a new account with a new bank before you start your DMP.

To find out more continue reading below.

Protecting your money from the offset rule

If you owe your bank money which you cannot pay - perhaps in the form of a loan or creditor card – then your bank can withdraw money that you have available in your current account to repay your other debts without your authorisation. This is known as the banking off set rule or the banking right of offset.

Using the right of offset, your bank is able to take money out of your account to pay your debts that you were expecting to be able to use for living expenses such as paying the mortgage or the monthly shopping. If this happens, you could be left in a very difficult financial situation.

The only way to be sure that the bank does not use the offset rule to take your money without your permission is to open a new bank account with a completely different bank to use from now on.

What type of bank account should you have?

The type of bank account that you open will depend on your current credit rating. 

Good credit rating = Current account

If you are currently up to date with all of your loan and mortgage payments and have not missed any in the past, then it is likely that you have a good, clean credit rating. Where this is the case, you will be able to open a normal current account at a new bank.

If you are able to open a current account you will get a debit card and will often be offered an overdraft facility and even a credit card. If you are planning to start a debt management plan you should not take up the offer of a new overdraft facility or credit card.

Poor credit rating = Card cash account

If you believe that you have a poor credit rating, it will be difficult for you to open a standard current account. You will therefore have to open a simple bank account often known as a card cash account. You will not be offered any type of credit facility with this account.

In the past, the main problem with a card cash account was that it did not come with a debit card. However this problem has largely now been resolved as many banks now offer their  card cash accounts with a debit card which comes as standard.

The banks on the list below provide card cash accounts and should be able to help you:

Barclays – Cash card account (provided with debit card)
Co-Op – Cash Minder Account (provided with debit card)
Clydesdale – Ready cash account
Santander - Instant Plus Account
Halifax/BoS – Easy cash Account
Lloyds – Card cash account
NatWest - Step Account
RBS – Key Account