Is Budget Billing for Your Utilities Right for You?

Caucasian woman sitting on floor paying bills with laptop
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Many utility companies are now offering the benefit of budget billing. This basically means that you pay a set amount each month for the bill. Generally, the power or gas company offers these services. The company will look at the amount you spent last year and then add a percentage to it, to cover the cost of inflation and divide the amount over 12 months. While this may seem to be a great idea to help you with your budget, you need to carefully consider several things before you sign up. Some plans are great and some are another way for the company to charge you more money.

Find Out What Happens If the Company Estimates Incorrectly

Take a look at whether or not you will owe them money if you use more power than they planned. This is fine since you used the power, but this may be due at the end of the agreement without any notice. You may need to set aside extra money to cover the cost in December. This means you may end up paying more than you planned or used. 

Ask what happens if you end up overpaying because you used less electricity then the company estimated. Generally, the company will keep the money at the end of the cycle. It will be credited to your next year's cycle, and you will not receive a refund. They may adjust the next year's payment to better reflect your usage, but they may not do that either. The budget billing terms are usually in favor of the company and not the consumer. This is the biggest drawback when it comes to considering a budget billing plan.

Look at the Monthly Fees

Examine all administration fees associated with the service. Many will charge a monthly fee. The fees can vary from company to company, but anything more than two or three dollars a month is too much money for the service. All the company is doing is averaging out your yearly electric payment. This is not something that should require a high monthly fee. Many people will sign up for budget billing over the phone, and so it is important to ask for this fee. You should also read the fine print when you receive the agreement.

Do not verbally agree to budget billing without first seeing the terms in writing. You can tell the customer service representative that you need to talk it over with your partner and ask them to send you a copy of the terms and conditions and that you will call back if you choose to sign up for it. The company can mail you the information and it will give you more time to make the right decision instead of being pressured into it over the phone.

Carefully Read Your Contract

Consider the contract that you are signing. When you do this you are signing up for at least a year. There may be complications if you have to move. You should look carefully at the expectations on this. For example, you may need to pay extra when you move if you have used more power than you have already paid for. If this is the case, you may need to set extra money aside or dip into your emergency fund to cover the difference.

Create Your Own Budget Billing System

Think about doing this yourself, without the charge, the contract, and the hassle. You can even budget the amount they suggested. Then roll over the additional amount from the lower months to cover the months where you use more power. This will help you to budget without spending money on administration fees. You can do this with any category where the amount you spend each month fluctuates. You can either divide the amount you spent over the last year by 12 or budget the highest amount you spent last year for each month and then put the extra money into savings or towards your debt payment plan.

Averaging the costs yourself and budgeting that amount may be the best way to deal with your utility bills. However, the first year it may be difficult since you may spend a lot more in the summer or winter than you do in the fall or spring. Budgeting for your highest bill and putting the leftover into the category will make it easier to start budgeting on average usage after a year.

Make Your Decision Carefully and Monitor Your Bill

It is important that you fully understand what you are signing up for. There are advantages to knowing exactly what you will be paying each month. It may be worth the added expense for you. If you are worried about the cost of your utility bills, you can work to lower them, like preparing your home for winter. If you do sign up for budget billing, you may be tempted to simply pay your bill each month and stop worrying about this expense. However, that may end up with you using too much power and being hit by a large bill.

You need to monitor your power usage throughout the year to make sure that you are within your the estimated power usage, especially as you begin to reach the end of your contract.