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The Disadvantages Of Direct Debits

I should state from the beginning that direct debits are a good thing, without doubt. So what is the point of this article? Well it is simply to point out that when paying off something, it is not automatically the best option to set up a direct debit. Sometimes you can save money by using alternative methods. We look at the disadvantages of direct debits.

The Disadvantages Of Direct Debits – Insurance Policies

With many insurance policies, by paying off the policy on a monthly basis you end up paying extra via interest charges. If you can, it is better to pay off a year of charges in one go. The same can be said for taxes on motor vehicles. There’s a 5% surcharge if you pay in monthly or 6-monthly instalments. However you can still set up a Direct Debit for a 12-month payment to make sure you don’t forget. At any point you can check out the charges on the government site here.

Mobile Phone Contracts

Many of us pay for our phones on a monthly basis. What we are essentially doing over the course of a pre-agreed contract length is paying for two separate things. You pay for the airtime each month, and you also pay off the cost of the mobile phone. However it you can afford to do so, it is much cheaper to buy the handset outright upfront. And then take out a cheap sim only deal. Over the course of the contract, this saves you a lot of money. What’s more, with a sim only deal, you are much less likely to be tied into a long contract.

Catalogue Stores

I saw Martin Lewis comment this week that the sort of catalogue stores that allow you to buy now pay later could become the new financial blight for millions of customers. This is because such direct debits that see you pay off items over time come with exorbitant interest rates. Thus the final total is much more than the advertised price. As always, our advice remains the same. If you need to buy something, try to pay for it up front. Do not borrow for treats, only for essential items. 

Amazon Prime & Similar Services

Amazon Prime is just one example of a subscription service where it is cheaper to pay for a year’s service or more in one go, rather than on a monthly basis. This is a common practice for many companies now, to tie people in for longer by offering inducements. I save money in a similar way by paying for audio editing services this way. So again, if you can afford to pay for such subscriptions a year at a time do so. The same principles apply for many transport costs, such as for season tickets for trains, trams and buses. The longer periods you buy, the cheaper it becomes per day.

The Disadvantages Of Direct Debits – Other ways to spread costs

If you can obtain a 0% purchase credit card it’s a good way to spread costs without attracting extra fees or interest charges. You must make minimum payments each month. and pay off the outstanding balance before such offers expire. Another alternative would be to borrow from a friend or family member. This comes with its own risks however.

When Direct Debits are an advantage

Of course, on the whole, Direct Debits are good and can save you funds. Many suppliers offer a discount too if you pay by direct debit. My football season ticket is paid by direct debit, at no extra cost. This allows me to spread the cost, when in the past i had to find the full amount every May. Utility bills should be paid by direct debit. And a key advantage with them is that things get paid automatically, without you having to remember to make payments. In the past i have missed payments and my credit score has suffered. And all because i did not get round to setting up a direct debit.

The Disadvantages Of Direct Debits – Other Considerations

Do not forget that a Direct Debit means the amount can vary each month. Alternatively a standing order is for a fixed amount. It’s necessary to make sure you have enough money in your account before committing to a Direct Debit. Doing so means you avoid penalties for going overdrawn.

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