A Debt Management Plan (DMP) is a common solution for solving a personal debt problem. If you are struggling with your debts it will help you to reduce your monthly creditor payments to a sensible and manageable amount. However what affect will this have on your bank account?

If you do not owe any money to the bank where you have your current account then you should not have any problem with continuing to bank with them even if you use this solution.

However if you owe money to your bank it is important to understand that you will need to open a new account before you can start your Plan.

Why do you have to open a new bank account before starting a DMP?

The reason you will need to open a new bank account if you owe money to your bank is to make sure you remain in control of your cash.

If you owe money to your bank which you are unable to pay such as a credit card debt, loan or overdraft but still pay money into your current account with the same bank, the bank is allowed to take your current account balance to help pay off the unpaid debts. They can do this without warning or your prior agreement. This action is known as the off-set rule or the “right of off-set”.

Because of the off-set rule if you are planning to start a DMP the only way you can be sure to protect your monthly wages and other income is to make sure that it is paid into a bank where you do not owe any money. The off-set rule does not apply across different banking groups.

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How to open a new account before starting a Debt Management Plan

If you need to open a new bank account to protect your money from the banking off-set rule the first thing to do is chose a new bank. Clearly you need to choose a bank which is not part of the same banking group where you owe money.

When opening a new bank account you also need to take into account whether or not your credit rating is good or bad. If your credit rating is still good then you should have no problem opening a new current account with any bank of your choice.

However if you have already started to miss your debt repayments then your credit rating might already have started to get worse.

If this is the case then you will need to apply for a simple bank account commonly known as a card cash account. Generally speaking these accounts provide all of the same facilities as a standard current account but do not offer credit facilities.

What if your wages have been paid into your old account?

Another thing to look out for if you are opening a new bank account is the timing of when your wages are due to be paid. Even if you open a new account, it is possible that your employer will not have time to change their payment run and will still pay your money into your old bank account.

If this happens there is no need to panic. All you need to do is simply draw out the money you have been paid (over a few days if necessary) and pay it into your new account.

All of your direct debits for the living expenses payments you must continue to make can then be changed so they are taken from your new account.

Is opening a new bank account worth the hassle?

It is true that the prospect of having to open a new bank account and change over all of your living expenses direct debits can be daunting. However this is a small price to pay for the benefit of protecting your income.

Of course, it is going to take a bit of work and organisation to make sure your income is paid into your new account and that all your direct debits are changed properly. You may also have to get to know how to use you new bank’s online banking system.

However if you are starting a debt management plan, it is far less painful to open a new bank account than face the real prospect of losing control of your money and having it swallowed up by your old bank because you owe them money that you cannot repay.