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I have always used direct debit for all my bills, including telephone, utilities, credit cards, health insurance and all other services.

But I keep reading about people who complain that they were fined for paying a VISA bill late (which allegedly happened because the bill also arrived late) and about people who have suffered other penalties because they missed a bill. Then there are stories about cheques being in the mailor having been lost in the mail or not accepted by a recipient.

I am always wondering how these things can actually happen, short of one not having enough money to pay the bills. Any ideas?

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This is a huge practical and philosophical question, Andrew. My bottom line is that we (ie., Western Society) do an appalling job of preparing people to manage their finances. I've lived in various countries and it's not just Americans who live "one paycheck from bankruptcy" - you see people out of their depth everywhere. –  gef05 Oct 28 '11 at 12:19
    
Yes, but this question has two dimensions. How can the planning go wrong? (One) And why do people even decide against direct debit and create for themselves a situation in which they can overlook a bill? (Two) –  Andrew J. Brehm Oct 28 '11 at 12:28
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Andrew, see Comment 1 - that's precisely the point I'm making. People aren't educated in how to plan or manage (one & two). Looking over your responses below, I think you are erring on the side of believing that people have a better handle on their finances than they do. –  gef05 Oct 28 '11 at 14:21
    
But you see, that's what puzzles me. I think I would freak out if I had to react to lots of bills coming in every month, knowing that they don't settle themselves. With direct debit, I only have to worry about making enough money to pay for everything, but I don't have to worry about the mechanics of paying the bills. –  Andrew J. Brehm Oct 28 '11 at 14:39
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At its heart, this is a valid question. However, as it is posed it has been a pretense to lecture those that do not use automated bill payments. Andrew, if you continue to push your arguments for direct debit I will be forced to close it. –  George Marian Oct 29 '11 at 3:31

8 Answers 8

up vote 19 down vote accepted

Even for those of us who aren't at risk of over drafting, direct debit is a less-than-stellar option. Direct debit is a great way to begin ignoring how large your bills are. By explicitly paying them through my bank's online billpay, I notice immediately when a bill is larger than it ought to be.

This is often caused by a billing error. In which case I've found it far easier to resolve disputes when the money is still in my hands. It's significantly harder to convince an internet provider, cell phone service, or utility to reverse an incorrect charge after it's been paid than it is before.

The other times, it's because I've been using the service more than normal. For example, sending text messages more frequently or using more electricity. Explicitly paying these bills makes me realize upfront that there's been a change in my behavior and I can either reduce my expenses or accept the higher cost for higher service.

My own experience leads me to believe that paying your bills automatically every month is a great way to ignore these events, and leak money like a sieve. Online bill pay makes doing this as trivial as I could hope for, and the risk of missing a payment is essentially nil.

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This is a reasonable answer. –  Andrew J. Brehm Oct 29 '11 at 15:39
    
+1 - trust yourself to pay your bills, do not trust a company to bill you correctly. Everybody makes mistakes, including a billing department wanting your cash. Protect yourself and be aware. –  MrChrister Nov 9 '11 at 17:25
    
I actually forgot a few points. One was unannounced rate hikes. The other is that direct debit can also fail when you close out your bank account or credit card and forget to update the information at all your billers. When the biller can't successfully charge your account, you can end up being charged late fees. Worse, sometimes they don't properly notify you, and you wake up one day without gas or electricity. –  Stephen Touset Nov 9 '11 at 17:36
    
A coworker of mine just today discovered he's been charged $400 by T-Mobile for no discernable reason whatsoever. He had auto-pay enabled, so they just withdrew money from his account at will. Now he's going to have to contest the charges and try to claw back his own money due to their screwup. –  Stephen Touset Feb 6 '12 at 22:58

There's the fear that one might forget the debit is coming and still bounce the payment.

Personally, I agree with Dheer's list, I don't want to give someone unlimited access to my account. I make good use of electronic payments where I initiate the payment.

For the credit card I use regularly, I have a $250 monthly payment set to go automatically. If I forget to make a payment or lose the bill, at least the minimum is covered. The monthly charges are enough that when I actually pay the bill in full upon receipt, it just goes in toward current charges.

Bills like gas/electric/phone are different every month, so an auto-debit is actually more trouble than how I handle.

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I find direct debit especially useful with utilities where the actual money requires is different every month. I don't see any of the points. Current accounts can have overdraft facilities to avoid bouncing direct debit payments. Direct debit is also not "unlimited access" to an account any more than using a credit card for some payment online gives Amazon "unlimited access" to the credit card. For all my credit cards I have direct debit set up. I pay up 100% every month, however high it is. Everything else I just find too complicated and none of the explanations make much sense. –  Andrew J. Brehm Oct 28 '11 at 14:01
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In the case of the utilities, with a direct debit I risk an overdraft fee. The utility company's late fee, if any is less than that. I've read cased where the debit went through with an incorrect number, an extra zero. True or not, I don't feel compelled to ever use this service. My use of online payments from checking is enough for me. For those who like direct debit, it's great, I'd not use my own excuses as reasons for them not to use it. –  JoeTaxpayer Oct 28 '11 at 15:02
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@Andrew J. Brehm - You need to open your mind to other stuff. Other than constantly harping about how direct debit is helpful, nobody is denying that, you need to consider other facts too. Some people live from one pay cheque to another. If something comes up and money needs to be spent, you would be charged an overdraft fee. Some people mayn't be as well off as we may assume. Some people may see the benefit in paying a little extra fee and spend money on something more urgent. Some people don't know about the options, some feel it is unsafe and some are lazy, like me. –  DumbCoder Oct 28 '11 at 15:23

My reason for not using direct debit is #4 on Dheer's list.

I just don't know where exactly I'm going to have what balance on what day, because I usually don't leave more than $100-$200 on my checking, all my cash is in Savings. I also don't want to direct debit from Savings in order to not break the 6-withdrawals limit accidentally.

I use direct debit to my credit card where its available, but most places charge for that and I don't want to pay the extra fee.

So, I prefer to pay my bills manually.

What I don't understand is the people who pay the credit card bills when the statement arrives. I haven't received a credit card statement in years. Don't they have on-line access? Can't they set reminders there? If so - throw the card away, and get a normal one. Same with mailing checks, by the way. I'm still not even half done with the free checks I got from Washington Mutual 5 years ago. I almost never write checks. All the bills are paid online, whether through bill-pay service or an ACH transfer.

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Like the bit about credit card bills. But I still wonder why anyone thinks it is convenient to pay bills online rather than have them be paid automatically. Is the advantage of having a few hundred more on savings really worth the added trouble of paying bills manually? –  Andrew J. Brehm Oct 29 '11 at 15:38
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@AndrewJ.Brehm - I just told you why. Convenience is a very subjective matter. I find it convenient, and you don't, so what? Its not a trouble for me, and yes, I prefer my money to earn at least a little for me than just having it laying around on the checking account. –  littleadv Oct 29 '11 at 19:46

In general it's mostly inertia:

  • All People are not tech savvy, they do not understand the direct debit mandate form that needs to be filled.
  • They are afraid that if they sign something like this, they will get debited always ... plus there are stories to scare you, in case of fraudulent use of your card, you would get debited without your notice and your balance in savings would vanish. Getting this back is a hassle.
  • They also don't feel that they are in control if everything is automatic. Here, the act of writing the check makes them feel in control.
  • They are not sure as to which bank account will have a balance, hence are more comfortable writing out a check every month.
  • They are not sure how dispute resolution would work, for example the bank shows debit, but the utility company does not show credit, It means running around.

There are tons of reasons and they would vary from region to region.

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I always found the direct debit mandate form a lot easier than dealing with a cheque book. And who pays bills from a savings account? –  Andrew J. Brehm Oct 28 '11 at 13:00
    
@Andrew J. Brehm - In some countries i.e. India, they are still known as savings accounts, you get interest on the money in your accounts. Current accounts aren't that prevalent, like in the western world. –  DumbCoder Oct 28 '11 at 13:08
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+1 - I like to review my bills and make sure I am not being over charged. If I set up auto debit I will skip this. Maybe not everytime but occasionally, then more than occasionally and eventually as the rule then one day I will look at my bill and find something I have been getting charged for 6 months that I never signed up for. –  user4127 Oct 28 '11 at 17:07
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Chad: I do that every month. Direct debit doesn't interfere with this. –  Andrew J. Brehm Oct 29 '11 at 15:36

I don't use pre-authorized automatic payment methods because there is no control, and it is impossible to get it back. Once you have authorized a firm to withdraw funds from your account, there is no realistic way to revoke that control, save closing down your bank account entirely and moving to another institution.

I once had automatic payments set up for my apartment rent, and then one month they withdrew twice on one day, overdrawing my account; it was very difficult to dispute the charge and get it back. The bank was little help as I had authorized them to withdraw funds; it didn't make any difference that they had done it twice, because I had given them permission to withdraw that amount. The property management company was large and difficult to contact, and at first denied any wrongdoing.

tl;dr version: it's more pain than it's worth, and I will never do it again.

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I can always undo a debit from my account and cancel the direct debit. I would just have to call my bank or do it online. I have never had anyone charge me more than I owed plus I always get the bill 21 days in advance so I know how much they will withdraw. –  Andrew J. Brehm Nov 9 '11 at 15:11
    
"impossible" seems to be an extreme statement. Ethical companies will comply and more companies in the world are ethical than not in my experience. However one bad apple spoils the bunch for sure. –  MrChrister Nov 9 '11 at 17:27
    
I was astonished to learn that this is the case in North America. In the UK you do not authorize a company to make withdrawals from you account, you authorize the bank to allow those withdrawals, and you can stop them at any time by telling the bank. In North America I was flatly told by a banker that they will pay your money to any institution that has your bank details and claims you have authorized them to do so. –  DJClayworth Jan 6 '12 at 17:40

I put bills with a fixed monthly amount to my credit card, and remember to pay it every month. However, I do not let any bill with a variable amount "pull" access to my funds. I have to "push" the payment. The reason is simple: We've all heard the tale of the Electric meter that rolled past zero, and the customer got charged for $65000.00, or other similar situations. When there is pull access to my money, then I have to work to get my money back. When there is push access, I can (in the electric situation above) pay an estimated monthly amount, (say $100) to demonstrate good faith and make them come after me. When they do, I can ask them to demonstrate the accuracy of the bill. If I have to go after them, I have to demonstrate the inaccuracy.

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People just don't think about the dangers of Direct Debit- just Internet search to easily find out about the huge amount of people that have had problems, companies taking too much, the wrong time etc, making them go overdrawn and into fees (£30 for every bounced DD)& interest etc. Yes the DD guarantee IS useless, if you complain to your bank they almost invariably tell you to take it up with the company issuing the DD. Or if the bank even DOES (after much begging) get the money restored for you, did you know that the company can simply REINSTATE the DD amount and you'll have to go to your bank to get it reversed AGAIN. Banks have even admitted to distressed customers "DD originators have every right to reinstate DD amounts if they believe they have an outstanding unpaid debt!!!!" (And there was me thinking the money in my account was mine and what gets paid out is under my control- no longer true once you sign a DD mandate!) The astounding thing is that once anyone has got your sort code & AC no they can put it on eg any charity donation newspaper form and set up a DD- the bank doesn't check the signature or anything at all once the details are transmitted electronically to them by the charity's bank. (I learned this from someone who used to write DD software for banks). Please check out this very telling article http://news.bbc.co.uk/1/hi/7174760.stm The onus is on YOU to notice the payment you didn't authorise! That's how wide open the system is that the all powerful commercial banks have unleished on us permitted by our supplicant and negligent governments.

Moral of the story: Don't EVER give your AC details on DD mandates to ANY company you need to pay, use standing orders (which YOU have total control over) to pay them or electronic banking (where you ring your bank every time you get a bill) to transfer the money, or pay by cheque the bill at your bank branch or at a PO or by post. Carefully guard your AC numbers and watch your statements like a hawk every month.

One final point how do I manage to avoid DD (where I live in the UK) without being penalised? Answer: 1) My UK gas & elec ACs are with Scottish & Southern energy EQUIPOWER tariff which charges everyone the same low tariff HOWEVER they pay. 2) My landline phone- I ditched BT as soon as they started penalising and changed to Post Office homephone exactly the same service, copper telephone line & exchange equipment & IN ALL ASPECTS (line rental & free periods) CHEAPER than BT & no extra charge at all for paying by cheque at any post office- EVERY bill.3) Council Tax & Inland Revenue charge nothing extra for paying by cheue either at your bank, the PO or by post. 4) I don't bother with Gym membership- I just WALK a lot!, 4) I take the risk and don't bother with AA or home insurance as I am an engineer and able to forecast and carry out all my own home repairs and build in stiff burglary prevention measures, locks alarms etc.

Stop doing what you're told people- think about the possible downsides later when the commercial companies suggest to you ways of doing things that benefit them. Telling you the upsides but not the less obvious serious downsides.

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I have used DD all my bill-paying life (I am 34) and never ever has anyone taken too much money from my account using the mechanism. Furthermore, I see all bills well in advance (20-30 days) before the money is deducted from my account, so the time when they deduct and how much is hardly a surprise. Finally, restoring money thus paid is not very difficult, at least not in Ireland and Germany. I didn't think it was much different in the UK and US. –  Andrew J. Brehm Jan 5 '12 at 11:55

Three reasons I prefer not to use direct debit:

  1. I want to be in touch with my finances. While I find the best way to do that is still to dole out cash, that's not practical these days. But typing in how much I pay for cable every month makes me confront the cost of cable more than "Your transaction has been completed".
  2. Because I want to know it worked. And as importantly, I want to know that it stops when I want it to stop. I've got little faith Cable Company X wouldn't happily bill me for a few more months because one of their computers isn't talking to another computer, and I'm skeptical that I'd ever see that money again.
  3. Timing. I live within my means, but there are times when I could really stand to have my rent paid on the 3rd instead of the 1st.
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