Using direct debits to pay your bills is a very convenient way of organising your finances and it is a method of payment that has become increasingly popular over the last decade, causing the usage of checks/cheques to decline. However, whilst there are very obvious benefits to using direct debits, there are also some disadvantages. So, for a balanced perspective on direct debits, here is a list of their pros and cons.
Advantages of using direct debits:
Let's face it, we often value convenience above all else and it is at the heart of why direct debits have become so popular. In the past, you had to remember to write a check and then remember to put it in the envelope and take it to your nearest post box. This sometimes felt like a hassle, especially if it was cold and wet outside! Now, however, with my direct debit set up, I can just sit back and the bill payments will take care of themselves. I can monitor them via online banking, to make sure they've gone, but I no longer have to physically intervene to make sure that the gas or electricity bill gets paid.
Direct debits are a form of electronic payment. You might need to fill in a bit of paper (in the guise of a mandate form) to set up the direct debit but, thereafter, there is no paper involved. This probably isn't the driving factor for most people who switch to direct debits but it's a nice bonus.
Utility companies often offer discounts to people who agree to pay by direct debit. There's solid logic to this. The utility company is much more likely to get their money and, crucially, get it on time if you've signed up for direct debit than if they're relying on you to remember to send a check on time. They can, therefore, afford to pass on a small cost reduction to those customers who opt for direct debit payments.
Ease of tracking:
For those who like to budget and carefully account for every dollar and cent that they've paid, it is much easier to keep track of how much your spending on all your bills if you are paying by direct debit. They will be easily identifiable as transactions on your statement and your online banking service may even offer a function of listing all your direct debit payments separated out from all your other payments. In contrast, checks tend to just show as a check number on statements, and it is laborious to have to manually work out what each check number related to.
Disadvantages of using direct debits:
Control over payments:
If convenience is the main advantage of direct debits, then I guess that control is the flip side. What I mean by this is that, having set up all your direct debits, they will just automatically come off your account on the due payment date. They will do this even if you don't have enough funds in your account and may cause you to go overdrawn, thus incurring hefty charges. When paying by check, on the other hand, you could choose to delay the payment until such time as you'd been able to clear money through to your account.
The "out of sight, out of mind" pitfall:
The other main drawback to automating your payments, via direct debit, is the possibility that this may lead you to accept the level of costs that you are incurring to your utility companies. At least when you had to pay by check, you saw the payment amount every month and, if it looked high, you could be prompted to doing a comparison against competitor companies. With everything automated, you may fall into the habit of accepting the costs you are incurring when, actually, you could achieve significant cost savings by switching to a rival company.
We've seen, then, that there are both advantages and disadvantages to paying your bills by direct debit. Speaking personally, I have made the switch to direct debit and am very glad that I did. I find it really convenient and like the fact that it is both environmentally friendly and saves me money. I am aware of the potential pitfalls of direct debits but manage these accordingly. On the control side of things, I try to arrange to always have my direct debit payments come out just after pay day to minimise the possibility of there being a lack of funds. Additionally, I regularly review my online bank statement and, through, it can record how much I'm paying on all my bills each month. This, combined, with visiting price comparison websites means that I have no excuse for not being on competitive rates. Certainly, though, I'd recommend that you weigh up both the pros and the cons before making your decision on whether to switch across to the direct debit revolution.