Written by: Cally Worden
On the face of it Direct Debits are a fantastic invention – they help you ensure that you don’t miss critical payments that may otherwise lead to debt. What better way to manage your finances. But before we all start patting ourselves on the back for our own cleverness let’s just take a step back and make sure we know exactly what we’re getting into.
Time for a Direct Debit Audit
One of the main issues with Direct Debits is that once they are set up you tend to forget about them. Okay, so that’s kind of the idea – after all, what’ s the point of useful financial tool if you can’t let it do it‚Äôs job and get on with your life? The danger is that it’s TOO easy to forget about them. Have a check through your Bank accounts, chances are you will find a few Direct Debit payments each month that don’t really need to be there.
As you conduct your audit look at each Direct Debit in turn and ask:
- What is this for?
- How long have I been paying it?
- Is it a finite payment commitment?
- Does it automatically renew?
Obviously Direct Debit payments to cover essential bills will pass muster. But what about that gym subscription you never make use of, the repair insurance on the washing machine that you replaced last year? It’s possible to waste lots of money on almost inconsequential Direct Debit payments that you have simply forgotten about.
Use Online Tools to Help
Most online banking systems allow you to filter standing orders and Direct Debits from your Accounts, it’s quick and easy to call up a list of payments that are routinely made from your accounts. If online access is difficult for you then request a year’s worth of statements from your bank and start reviewing them manually – most banks use easily-identifiable codes on their statements for Direct Debit transactions. If you’re not sure what a payment is for, ask your bank who the recipient is.
For most standard Direct Debits you complete a form that discloses your bank account details and the money is lifted directly from there. In recurring payments the structure is a little different. They are established when the company you are paying asks for the long number on your credit or debit card. This gives them what is known as a ‘Continuous Payment Authority’, where the company will automatically continue to take payment when needed until you cancel that right. Examples of this are subscription TV channels, additional insurance on items you may no longer even own, direct debits to charities, dating site memberships, payments that kicked-in at the end of free trial periods, and so on.
To cancel these payments first contact the company and ask that they stop taking the money. If they don’t, recent changes to the law mean that you are now able to cancel recurring payments by requesting your card provider to stop them.
The Mental Block
Some people find setting up Direct Debit payments easy, but worry about cancelling them. If this is you, then try applying the following list of questions to each payment to help clarify your thoughts:
- Do I use the thing I am paying for?
- Is it really worth the money?
- Am I paying more than I need to?
- Am I in contract? – If you have committed to pay for a fixed period you may be in breach of contract if you cancel earlier. This may result in fines, so do check the details before you finalise any cancellation
Direct debits can be a great financial management tool if used correctly. Make them work for you by conducting regular audits of your accounts, and then rest easy in the knowledge that your money is in safe hands – yours.