Money mensch: Time for direct debit spring cleanout
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It is time to seek and destroy wasted direct debits. Many thousands of people across the UK let cash seep from their accounts in direct debits for things they do not use. By tracking these down, you could discover long forgotten payments you have been shelling out for over years.
Do not get me wrong — regular payments can save you cash. For example, paying by fixed monthly direct debit saves around 10 per cent on energy bills, and credit card direct debits mean you cannot be hit by late or missed payment fines and the ensuing hit to your credit score.
However, many people are paying direct debits for things they no longer need or use. One of the most extreme cases I came across was a man who had been paying for two old insurance policies. He had been forking out £20 every month on them for three years — a whopping £720 wasted. He asked if there was anything he could do about it and my only answer was, “stop paying”.
Do not let this happen to you. The solution is to unearth every single regular payment and stop the unnecessary ones. Before auditing your payments, though, you need to understand that there are three different types of regular payments, and the way to cancel depends on the one you are dealing with. The levels of protection vary from hugely pro-consumer to a virtual licence for companies to steal your cash.
● Standing orders: You’re in control
The first is a standing order. This is an instruction from you to your bank to pay a fixed amount out at a regular period.
The method is commonly used to pay an individual a fixed amount every month, contribute to your favourite charity or pay rent to landlords. It is usually free and you can cancel it whenever you like.
● Direct debits: You are mostly in control and have extra protection
Direct debits are where you let companies take money from your account, and while often it is just for a fixed payment, as with utility bills, be aware the amount could be variable, such as an instruction to “pay my credit card off in full”.
As direct debit is a specific scheme with strict rules that companies must sign up to, you are protected by the direct debit guarantee. This means you have a right to contact your bank to cancel at any time you like, and if there is an error you get a full refund from the bank, rather than the company itself. Though do always check that by cancelling you are not in breach of contract.
● Recurring Payments: Danger — you have no control
The last type of regular payment is a recurring payment. These are regular payments set up from credit or debit cards rather than bank accounts.
A huge WARNING: recurring payments are dangerous. They used to be called “a continuous payment authority” but, whatever the name, they are hideous for one reason: you cannot cancel them; only the company you are paying can do it.
This means if you want to end a subscription and cannot contact the company, or fall into dispute with it, there is little that can be done, without huge effort, to stop it.
Common types of recurring payments include telecom companies, subscription-based services such as TV channels and, most worryingly, adult entertainment providers.
The difficulty of cancellation, combined with the embarrassment factor many feel about taking this to their bank, makes rich pickings for unscrupulous operators.
Yet even with legitimate companies it can be a nightmare. Many Setanta sports customers found cancellation very tough due to poor procedures. As only the company could cancel them, extra money dripped out.
Many people simply try and cancel their credit card at this point. Sadly this does not often work, as card companies only usually close down an account where there are no payments left to come out of it.
If you are a victim, first try contacting the company that is taking the cash. If that does not work, dispute the transaction with your debit or credit card firm, saying it is unauthorised. Under the banking code, the bank has a responsibility to sort it out.
The last resort is to make a complaint to the free Financial Ombudsman Service, the independent arbiter of financial disputes. Hopefully, just the threat of this to your credit card provider should be enough in the first place.
● Do a Direct Debit Audit
Now you know the different kinds of payments, it is crucial to go through every one to check whether it is still worth it.
Most online bank accounts allow you to click a section which displays all your standing orders and direct debits. If not, there should at least be easy access to a year’s worth of statements.
If you have a branch or telephone account, your bank should be able to list all the standing orders and direct debits for you. If not, then at the very least request a year’s statement.
Yet sadly, recurring payments, the worst type of regular payments, are much harder to detect, as they just appear on your statement like any other; they are not categorised. So you are going to need to scour your statements to find them.
Once you have located them all, for each payment ask yourself three questions. Is it paying for something I use? Is it worth it? Could I find the same service or item cheaper?