Thursday, 21 February 2013

The Ins and Out of Direct Debits

I’ve previously mentioned that paying household bills by direct debit can save you money, with many companies offering a discount for doing just that.

In addition to this it ensures bills are always paid on time without you having to remember to see to them.

But there can be a downside to some kinds of direct debit. I pay all our household bills by this method, with three different variations in use:
Paying the bill in full by direct debit. This applies to my phone bill, for example, for which I receive a quarterly statement, informing me how much will be taken from my account and when, usually giving me 10-14 days notice. Although this doesn’t spread the cost, it does give me a small discount on the bill and ensures I don’t forget to pay.
Paying in equal monthly instalments by direct debit. This is used to pay for services for which a set sum is applied for the year, as with Council Tax. The yearly bill is broken down into equal monthly payments, spreading the cost.
Paying a variable amount (changeable with notice) by direct debit. This method is used by energy suppliers, for example, who set a monthly amount and then review it on a yearly basis, putting it up or down depending on your usage. However, EDF have recently started reviewing our payments with greater frequency and, we feel, quite unnecessarily. We’ve had to argue the point that the idea of this form of direct debit is that the balance is cleared over the course of a year, as opposed to being permanently in credit! The idea is to spread the cost, not only pay in advance.

If your direct debit payments do get raised unexpectedly to an amount you consider inappropriate, then do challenge this. Theoretically direct debit payments and only be taken from your account if you are a) aware of the amount (reasonable notice must be given of a change) and b) have agreed to the amount. If you tell a company not to take a certain amount, they are not supposed to and payments taken in error can be reclaimed. Don’t be persuaded to pay more than you need: it’s better that extra money sits in your bank account, as opposed to the account of the company you’re paying.

Direct debits can be a convenient, money-saving way to pay your bills – but do be aware of the pitfalls.

How do you get on with direct debit payments?

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