Be vigilant to ensure you get the best value from your direct debit
Last week, I visited a family that had got themselves into financial difficulties.
As a result of changes in their personal circumstances, they could not afford to pay their household bills and were on the edge of defaulting because they had no money coming in.
They could not buy oil to heat the house or bottled gas to cook with. They were trying to temporarily heat individual rooms because they considered this the cheapest way to keep warm.
The house was in darkness, with only the fridge drawing power.
Yet when I sat down with them and dug deeper, something was odd.
They had been prudent with their electricity account with a competitive tariff and a payment scheme using a monthly direct debit to keep the costs down.
They were, thankfully, in credit to the power company but why should this be, given they had no money?
Their monthly direct debit was around £100 but since they had hit the buffers three months before, they had ironically managed to increase their credit balance from £150 to over £400.
They had not realised that the direct debit did not match their actual usage.
In effect, the electricity company was becoming banker of their cash while they were sinking without trace.
You could argue that they were in a better position than being in debt, but this situation was not helping them either.
Paying for your electricity by monthly direct debit is estimated to save you around £75 each year.
But be aware, the payment is based on your average usage. What you do not use in summer, your supplier predicts that you will use over winter, so that your credit in the warm months is eaten into when it’s cold. The direct debit spreads the cost evenly so you always know your outgoings.
The tariff, which tends to be what people focus on, is only part of the overall cost. There’s also the standing charge covering metering, transmission and distribution of power from the generator to your home.
But when you establish your direct debit, the company is making a prediction on how much you will use, not what you actually buy.
Irrespective of how cheap the power is, you could be paying a higher amount than you should be.
Having a low direct debit can be a problem too, because it can trick you into using more energy on the misunderstanding that the energy is cheap.
It’s probably preferable to be in a slight debit to the company so that you do not get into this false sense of security.
The trick is to make sure that you keep your payments matching your typical use.
The power company has an obligation to set a fair direct debit, adjusting it regularly if the usage changes.
They must also explain why they are making changes and should pay back any credit if the customer asks for the money back.
If you are overpaying, you are within your rights to get a chunk of the money back and renegotiate your direct debit payments so that they match your use.
Companies can be fined by the regulator if they mistreat customers.
So be vigilant, check your balance, monitor your usage and get the best value.
For more information, go online at www.moneysavingexpert.com.
-- Peter Gudde is envrionment manager for St Edmundsbury and Forest Heath councils