MARTIN Lewis is warning households that their energy bills could go up if they ditch direct debit payments.
Gas and electricity costs are set to soar, with a whopping £1,578 added to the average bill by October 1.
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More than half of consumers pay their energy bills by direct debit, according to industry regulator Ofgem.
But some households might be thinking about switching their payment method to control their finances.
That’s because direct debits are based on estimates of usage.
But Martin Lewis, founder of MoneySavingExpert, said this could end up costing households more in the long run.
In a video posted on YouTube, Martin responded to a MoneySavingExpert reader who asked if she should cancel her direct debit and switch to paying her bill on receipt.
He said: “You will get a short term cash flow gain from switching to paying in receipt of bills.
“However, over the longer run, because you’re paying more for each unit of energy you use, you will pay more in receipt of bills.
“Because if you overpay on direct debit you are entitled to that money back.”
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Following yesterday’s price cap announcement, customers who pay by direct debit will see their bills increase by 80% from £1,971 to £3,549.
Those who don’t pay for their energy by direct debit will see their bills hiked from £2,100 to £3,764.
That means you could be paying more than £251 a year extra if you ditch direct debits.
Those who pay by direct debit will often get a discount too, and it could save you hundreds.
The discount is automatic and most suppliers will add a line to your bill to say it has been applied.
The Sun has put together a handy guide to the full list of energy firms that offer a direct debit discount.
While the new price cap does not come into effect until October 1, Ofgem has warned that some suppliers could start to increase direct debits before then to spread costs.
How do energy direct debits work?
If you pay by direct debit you’ll pay your provider a set amount every month – but this isn’t actually your bill.
Your bill is the amount you’re charged for your energy.
It’s a combination of a standing daily charge and your metered energy usage.
It will be different every month, depending on how much you use.
By paying your direct debit ensures there is always enough money in your account to cover this changing cost and keep you in credit.
Energy firms estimate how much they think you’ll use over the year and divide this by 12 to determine your monthly direct debit amount.
If you pay quarterly, the yearly estimate will be divided by four.
It’s important to be aware that you might be paying for more than you’re using at some points during the year and particularly over the summer.
This is because it’s unlikely that you’ll be paying to heat your home during the warmer summer months.
But this tends to balance out over the year.
It may be worth switching to direct debit to get the bill discount if you don’t already pay that way.
Energy bill help
There are schemes offered by suppliers, local councils, charities and the government that could help.
If you’re struggling with energy costs or other bills there are plenty of organisations where you can seek advice for free, including:
You should speak to your energy supplier in the first instance as they have schemes in place to help with bills and arrears, including hardship funds and grants.
For example, British Gas and Octopus have set up funds worth up to £750 to help customers who are struggling with their bills.
Your local council may also be able to help with cash and grants if you are struggling with bills through the Household Support Scheme.
You should also check that you’re getting all the benefits you’re entitled to.
Use an online benefits calculator to make sure you’re not missing out on any extra cash.
Similarly, you can search for charity grants that help you pay for gas and electricity bills.
There’s more help from the government on the way too, later in the year in the form of one-off cost of living payments worth as much as £1,500 depending on your circumstances.
The £300 is on top of the annual winter fuel payment where those getting the state pension can get between £100 and £300 to offset the cost of keeping their homes warm over the colder months.
Low income households can get a one-off £150 payment under the existing warm home discount scheme – applications open in the autumn.
