Every coin has two sides

Photo by mixed.media

Sometimes, perhaps most of the time, making a choice isn't a cut and dried, black and white thing. More often you are wisest to consider all the pros and cons in the round and then work out the best fit with an honest assessment of not only your needs, but also your own particular strengths and weaknesses. I think the use of credit cards and of direct debits comes very neatly into this category. But first indulge me while I have a tiny moan (it's ever so quick), harking back to the previous post...

The more I mull over "The Spend Less Handbook" (see previous post for full review) the more irritated I feel with it. It is a book full of dictatorial statements - never buy anything with credit cards, switch all your payments to direct debits. There's very little that gives you the range of good and bad and then allows you to make your choice - which may be different from my choice for perfectly valid reasons. Do it her way or else you'll be poor and sorry, and possibly even spanked quite hard. I suppose it made her book easier and quicker to write - 365 reasoned and balanced arguments might have weighed in too heavily. Back to the fray ...

Credit cards can indeed be a slippery slope, if you are stuck with a ridiculously high rate, don't keep a track of your purchases (whether as a deliberate policy or through carelessness) and aren't organised enough to pay even the minimum amount on time. So if you are poor at paperwork or prone to buying things on impulse or having delicious little sprees then perhaps credit cards would be better prised out of your hands and wallet and therapeutically sliced asunder with big shiny scissors. But buying with a credit card can also be a good thing. You get an extra level of consumer protection. Think back to all those stories of holiday firms going bust or furniture firms going under. The people who got their money back were the folks who'd paid by credit card. All of the sensible people paying with cash or direct from their bank accounts were left high and dry - no holiday, no new sofa, no refund. Its just not as easy as saying credit cards are too bad for your health.

Photo by The urban snapper

Direct debits might seem less obviously bad but I have my reservations about their benefits. OK, fine, they are a godsend if you do forget to pay bills easily, if you tend to write your shopping list on the back of the electricity bill and then throw it away when you get home, or if you have so many bills to settle that it would take you a day to sit down and get them stowed away. But all too often there's a sting in the tail, and I think they can be just as tricky as credit cards if you don't keep your wits about you. Let me take a couple of examples of my own: 

I recently had both my phone bill and my water bill in the same batch of post. Both casually informed me there was nothing I need do but my direct debit would be going up in both cases. That's nice of them, they do all the work and I don't need to worry. Or do I? For a start I think those big statements telling you there is nothing you need to do should be banned and replaced by a warning to check the new figure and make sure you are happy with it. Why take their word for it?

I looked at my phone bill which is normally pretty low as we don't make too many calls, don't stay chatting for hours and our daughter isn't a teenager yet. On first glance it didn't seem such a big deal but then I looked again and worked out the percentage increase - a ludicrous 41%! And no, we hadn't started using the phone 41% more or even any more as it happens. Two things were going on, and both fit into the category of "naughty" as far as I am concerned:

• First of all this bill had come out a couple of weeks earlier than the usual quarterly date. This meant that only two of the direct debit payments due in the quarter showed up instead of three. That made it look as if we were slightly in debit.
• Secondly they were doing what I fear most of the utility companies do all too often - putting the amount up by over the odds so they get the benefit of those few extra pounds instead of you. Then at some point you build up quite a bit of credit and you finally get round to asking for it back. Miraculously it always seems to be that they owe you money but very rarely the other way round.

A while back I hadn't really been keeping much of an eye on the electricity bill, but when I went back over three years bills there was only one quarter out of twelve when we owed them money - for every other quarter we were in credit and they were happily earning interest on money that wasn't theirs - and we weren't.

As for the water bill, they were implementing a 26% increase in the direct debit, while their prices had only gone up by 7% and our actual usage has been declining overall, (although it always seems to rise a little in the first half of the year). So factor in an increase of 5% for increased use and that still means they think increasing their charges by over twice as much as you could logically argue is fair.

So while the press burbles on about how you pay less for paying by direct debit and the utilities smile and look magnanimous, they are actually raking in vast amounts of interest on the money they sneakily borrow from all of us. Of course we pay less for direct debits - the utility companies can make up the difference with the interest they earn on all the overpayments they enforce. I have half a mind to go back to paying on receipt of a monthly bill (actual reading not estimated of course). At least then we'd just be paying for exactly what we have used and nothing else.

Comments

[Helen Conway]

I agree wholeheartedly that credit cards used properly - i.e. with the bill paid off in full each month are great things. But then I would - I just got £195 cash back simply for taking 35 days interest free credit each month, getting free consumer protection and never paying them a penny in interest. Seems a good deal to me!