Direct Debit D-Day
Stop wasting your cash

Are you a victim of the growing march of regular payments seeping from our accounts for things we don't use. It's likely hundreds of millions of pounds are wasted. Yet, done right, regular payments can save you £100s. Make today D-Day for Direct Debits, standing orders and recurring payments.

This is a full guide to cutting the cost and the risk, including the unique Direct Debit wastage calculator.

• The three types of regular payment
• Do a Direct Debit makeover
• Direct Debit Wastage Calculator
• Regular payments
• The Good: Those that save you money
• The Bad: Those that cost you more
• The Ugly: Those that can steal your money
• Discuss/Other Articles

The three types of regular payments

It's dangerous to confuse the three different types of regular payments as 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.

  This is an instruction from you to your bank to pay a fixed amount out at a regular period. It's usually free and you can cancel it whenever you like.

• Direct Debits. You're mostly in control, but have extra protection.

  This is where you let companies take money from your account, and while often it's just for a fixed payment, like 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're protected by the Direct Debit Guarantee. This means you've a right to contact your bank to cancel at any time you like, and if there's an error you get a full refund from the bank, rather than the company itself.

• Recurring Payments. Danger - you've no control.
  
  This is a regular payment from credit or debit cards rather than bank accounts, where you let companies take money from the card, but worryingly, you can't cancel it, you need to ask the company to do it for you (more in the Recurring payments warning later).
  
  

Do a Direct Debit makeover

The aim's simple, to unearth EVERY regular payment and stop any you no longer need or use. It may sound like a no brainer, but discovering long forgotten payments you've been shelling out for over years is common.

Many are amazed at what you're paying for and never use: magazine subscriptions going to an old house; insurance policies for mobile phones you don't have; gym memberships you don't use, the list goes on and on.

In fact, when I spoke about this recently on GMTV, one viewer emailed in to say that by doing a Direct Debit makeover he discovered he was being charged each month for home insurance on a property he'd sold some ten months earlier because the provider hadn't cancelled his policy.

Although he'd already forked out £120 unnecessarily, thankfully he was able to stop further payments and claim back all the money he needn't have paid.

Step 1: Check what you're actually paying for

It's not just about your bank account; it applies to credit cards too.

• Online banking. Most online 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.

• Branch/phone based accounts. Your account provider 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 statements.

• Credit / debit card recurring payments. Sadly, these, the worst type of regular payments, are the hardest to detect, as they just appear on your statement like any other; they're not categorised out. So you're going to need to scour through your statements to find them.
  
  

Remember many regular payments are quarterly, bi-annual or yearly so stretch back over 12 months to make sure that you cover all outgoings.

Step 2: Do you really need it?

Now evaluate whether each payment is worth it. Scarily, you may find you've got regular payments for companies you've not heard of; try a quick Google search to identify them.

Once you know ask yourself three questions:

• Is it paying for something I use?
• Is it worth it?
• Have I checked if it's available cheaper elsewhere?

If the answer to any of these questions is no, then it's time to take action. If the payment isn’t doing you any good, cancel it, though do ensure you’re not in breach of contract by doing so. To see how much it's really costing you, try the calculator below.

Yet even if the payment is for something worthwhile, that still doesn’t mean there aren’t dangers (see below). Use the calculator, and feedback (or read others) on what you found and how much you saved: D-Day Success

Direct Debit D-Day

Annual Income £ OR Hourly Rate £

The Good, the Bad and the Ugly

If you don't use something, don't pay for it. Yet even if you do, making a regular payment may not be the best thing for you. Here's my list of the good, the bad and the ugly…

Many companies, usually in the utility sector, give big discounts if you're willing to pay by Direct Debit.

• Gas & electricity bills

Paying by fixed monthly Direct Debit saves around 10% on energy bills, which is likely to be a saving of £100 plus a year.

The reason it's cheaper is because they are now guaranteed to get paid and the monthly sum is based on your estimated usage; so you often end up in credit, letting the energy supplier earn interest on your cash. To combat this, always give regular meter readings. This way if it looks like your Direct Debit is set too high, you can ask to have it lowered.

See the Cheapest Energy Provider plus Cashback article for more.

• Home phone & broadband providers

  The discounts here are smaller, usually just one or two pounds a month, the main reason this discount's provided is that it's cheaper processing the bills this way.

  Some believe it's unfair that non-Direct Debit payers are penalised and a couple of cases are going through court challenging this. When there's any result, this will go in the free weekly e-mail. In the meantime though, as paying this way saves you cash, it's the MoneySaving solution.

• Manage your cash with standing orders

  Standing orders can be a very powerful tool for budgeting, they allow you to set up separate accounts and siphon your cash into them to better control your spending. See the piggybanking section of the full Budgeting guide.

Beware, there are regular payments which cost you more.

• Monthly car or home insurance Direct Debits

  Millions of us pay for home and car insurance this way, and the majority don't realise they're being stung for doing so. Rather than being treated as a good customer who pays on time; insurance companies consider that they've loaned you the money; and that means you PAY INTEREST on top. This ain't cheap, often it's over 20% APR.

  If possible, pay it off as a lump sum, if not get the longest 0% credit card deal and use that. If you can't get new credit, check the interest the insurance company is charging and compare it to the cost of your standard credit card; then do whichever is cheaper. Also see the Cheap Car Insurance and Cheap Home Insurance guides.

• Credit card minimum repayments

  These are a hideous invention, designed to keep customers perpetually in debt and paying a fortune. For example, for a £3,000 on a high street credit card at 17.9% interest, it'd take you 40 YEARS to repay at an interest cost of £6,300!

  It's because the repayment is a set percentage of the debt, and that usually barely covers the interest. Instead, pay off a fixed amount each month instead, e.g. pay £60/month on the same high street card and you'd clear the debt 33 years more quickly (see the Danger! Minimum Repayments for more).

  Yet minimum repaymerts can be a positive tool to guarantee you never miss or are late for credit card repayments. These result in a £12 fine, a hit to your credit rating and possibly a loss of 0% deals. If you use it for that, always ensure you repay more each month by cheque/online/over the phone. Never just pay the minimums.

• Paying for your TV Licence by QUARTERLY Direct Debit
  
  Pay for your TV licence by quarterly direct debit and you'll get penalised with a £1.25 quarterly charge, £5 a year. Yet pay for it by monthly direct debit or in one lump sum and you'll pay the standard amount. If you need to spread out the payment opt for the monthly direct debit or one of its savings schemes.
  
  
• When you don't have the money

  Bounce a Direct Debit and/or go beyond your authorised overdraft limit and you'll be hit with a bank charge of up to £35 per problem. Of course, this site's been at the forefront of the campaign to reclaim unlawful bank charges, yet it's still always best to avoid them.

  The automated nature of regular payments makes it easier to make a mistake, so always stay aware of how much you've got in the bank (see the budgeting guide) and how much is due to come out.

  Shockingly, in emergencies it may be better to repay the retailer by credit card, so the Direct Debit isn't taken. After all if you're overdrawn, this is likely to cost just as much interest, if not more than the credit card, and it may avoid you getting fined. See the Best Bank Account and Cheapest Credit Cards guide.

This is a huge WARNING, recurring payments are dangerous. That's the name for any regular payment set up from credit or debit cards rather than bank accounts. They used to be called 'a continuous payment authority' but whatever the name, they're hideous for one large, bold reason:

"You can't cancel them. Only the company you're paying can do that!"

This means if you want to end a subscription and can't contact it, or fall into dispute with it, there's little that can be done, without huge effort, to stop it.

How do you know if you've got one?

Don't confuse this with the Direct Debit that comes from your bank account to pay your credit card. If you gave your credit or debit card number, rather than bank account and sort code for a regular payment, then it's a recurring payment. It's most commonly done for online subscriptions and some online telephone services.

Is it ever worth doing?

Occasionally it's impossible to pay for something without doing it this way. In which case, if the company you're paying is a legitimate one, the risk is lessoned. If not, avoid like the plague.

The worst case is when it's a little known service, based outside the UK, so there's less legal recourse. Let me speak plainly here, one of the greatest danger areas for them are overseas internet adult entertainment or pornography providers.

The difficulty of cancellation, combined with the embarrassment factor many feel about taking this to their bank makes rich pickings for unscrupulous operators. You could be paying unnecessarily for years.

What can I do if I need to cancel but can't?

Many people simply try and cancel their credit card at this point. Sadly that often doesn't work, as card companies only usually close down an account where there are no payments left to come out of it.

To cancel when the retailer isn't playing ball, follow these steps:

• Contact the company

  Let it know you're going to dispute the transaction, it may give up and cancel.

• Dispute the transaction with the credit/debit card company

  Tell it the monthly payments are "unauthorised transactions" as then, under the Banking Code (which most card providers are members of) it's its responsibility to sort it out. It may mean Visa, Mastercard or American Express, the companies behind the electronic payments process, are called in by the card provider.

• Complain to the Financial Ombudsman
  
  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. If not, make a complaint, there's no cost, and it should be fine.
  
  

There are plans to make it easier to stop such transactions, and to force credit card companies to take instant action, but negotiations between Visa and Maestro have become bogged down, and sadly no changes are planned anytime soon.