A lot of people are asking about switching to paying a monthly energy bill instead of having a Direct Debit.
Decided if they try to increase my direct debit to anything I can’t afford I will tell them to cancel my Direct Debit and send me a paper bill. I will give weekly meter readings and pay for my usage AFTER I’ve used it, not a monthly amount ahead as a DD. Power companies hate when they don’t have immediate access to your bank or money it really annoys them as there’s a risk you won’t pay. I will put the money aside and physically pay the bill.
Some people say they don’t have any alternative as they can’t afford a much larger DD. Others want to do this because they need to be in control of what they pay.
If you think the Direct Debit isn’t just sky high because of price increases, but is wrong for some other reason, read this other article: “My energy direct debit isn’t just too high, it’s wrong”.
Can you pay monthly like this?
Yes, you can.
The general main problems with cancelling your DD are that your bills may be slightly higher, your credit score could be harmed and you may have to have a prepayment meter fitted. See Should you cancel your direct debit if you can’t pay your energy bill? for more details.
If you switch to paying monthly instead:
- many suppliers give a small discount for paying by DD, and you will lose this if you cancel the DD;
- if you pay the monthly bills in full, this won’t harm your credit record as you are not getting into arrears;
- your supplier can’t make you have a prepayment meter fitted if you are not in arrears.
A monthly bill will be very high in the winter
The problem with paying for what you use each month is that half of all gas used in homes is burned in just three moneth from January to March.
Direct debits smooth this winter spike over the whole year, so you pay the same all year, not more in the winter and less in the summer.
If you switch to paying monthly for what you use, you will have very large bills in the first three months of the year.
And it’s expected that energy prices will go up by a lot again in January 2023. The price cap is now predicted to rise to an average annual amount of nearly £5,400, which would be a DD of about £450 a month for the “average” household. But if that average household pays “on the monthly bill” then their January bill could easily be £700.
Even if you can take 20% off your energy usage – and many people will find that very hard – you may still be hit with huge unaffordable bills in January to March.
Cancelling the direct debit may feel now like it gives you more control, but it doesn’t solve the underlying problem that the energy prices are too high to manage.
If you carry on paying something when you can’t manage the full monthly bill, think about setting up a standing order so you pay the same every month. Then you are showing you are not wilfully refusing to pay.
“But they are asking for an absurdly high DD!”
Is it too high because the gas and electric prices have gone up such a lot? Or because you think they are basing it on the wrong amount of energy usage?
You can’t complain about the price being too high.
But if you think the calculation of the direct debit amount is wrong, you can challenge that. Not just cancel it, but complain about it. I’m going to write an article on this.
Energy Direct Debits have acquired a bad reputation
Direct debits should be seen as the simple, easy way to pay for energy.
But the poor behaviour of some suppliers over the last few years has made many customers suspicious of DDs. They have seen large credits accumulate and some suppliers make it very hard to get them repaid.
And many people in 2021 saw their supplier go under. It then took a worryingly long time for their credit balance to be transferred.
The big jump in direct debits in April/May this year for people on the variable price cap has reinforced this distrust.
Customers saw their DD jump but their usage was much less than the new amount so what appeared to be large credits have built up. For many people the DD amounts are actually reasonable and the credits are just a sign of how large the winter bills are going to be, not of suppliers being greedy. But this has not been well explained.
Suppliers need to find a simple way of communicating how the DD amount was set.
It should not have been necessary for Ofgem to name energy firms who must improve their Direct Debit setting. And Ofgem and the Insolvency Service must work together to find a way of speeding up the process when a supplier goes into administration, so customer transfers work better.