Using direct debit to pay your bills can be very beneficial or it can cause untold grief. Those who have monthly bills that are basically the same amount monthly (e.g., using budgeted payments on utilities, rent or mortgage payments, etc.) and who have a steady monthly income can benefit from using direct debit to pay bills.
The pros of direct debit
One of the best features of direct debit to pay your bills is that there is less likelihood of missing a payment. Credit cards and other companies that charge late payment fees will not benefit from delayed mail or from you forgetting to mail a payment on time. Direct debit of loan payments and other payments that are reported to credit reporting agencies can help boost your credit rating making it easier to get future loans.
The cons of direct debit
When managed poorly direct debit can create numerous problems. For example, someone who is paid weekly and missed a day (or week) from work and has their account set to pay using direct debit may not have sufficient funds to make a payment. This means that in addition to a late payment, frequently the consumer will also have to pay an overdraft fee and may have their direct debit suspended.
Who benefits from direct debit
Consumers and businesses alike may benefit from direct debit. For consumers, this means they have their bills paid automatically without worrying about due dates. For business owners, this means that bills are paid on a monthly basis without sending reminders or dealing with late payments. Additionally, consumers save money on postage costs since there is no need to mail monthly payments.
Making the most of direct debit
For consumers who wish to use direct debit to pay all or part of their bills, there are some things that should be carefully evaluated first. These include:
Monthly income – for consumers who do not have a fixed monthly income, direct debit may not be a good alternative. Those on a fixed income should make sure they have funds set aside for emergencies such as car repairs that may impact their accounts.
Payment schedules – pay close attention when setting up direct debit accounts. Requests for direct debit payments should be scheduled as much as one week in advance to prevent late payments. This allows the consumer to ensure they will not be penalized with late payment charges.
Budgeting payments – direct debit accounts work best when as many payments as possible are the same on a monthly basis. Contact fuel and utility providers to see if they offer a budget plan that will allow for stable monthly payments.
Proper recording – one of the most important things that must be done when using direct debit is to make sure that you record monthly debits in your checkbook (or passbook). Otherwise you may wind up overdrawing your account.
There are numerous pros and cons of using direct debit to pay your bill. One of the biggest pros is that you will not accumulate late payments. One of the biggest cons is that you may not have time to stop payments if you have a bad month (or week). Weigh the pros and cons of using direct debit to pay your bills carefully before you start on this program.