Should you use budget billing for your utilities?

If you’re having trouble paying your monthly bills, whether it’s electricity, gas or water, you should consider budget billing. But what is budget billing, you ask? And is budget billing worth it?

Budget billing can be a particularly useful tool when you are able to pay your utility bills, and yet you are still struggling to find money for them. If you’re way behind, there are ways to get help catching up on your utility bills, like turning to nonprofits that specialize in helping people with this specific need.

The cost you pay for electricity, natural gas or water can vary greatly from month to month, depending on the utility you have, the part of the country you live in and especially the amount of electricity. energy you consume.

Budget billing is a practice that many (but not all) utilities offer, where you’ll be billed the same amount of money for electricity, gas, or water each month. Instead of getting a bill in the mail or email telling you that this month you’ll pay a lot more than last month, every month in a row is the same.

“Rather than billing based on actual usage, budget billing relies on average usage to bill the same amount each month,” says Amy Maliga, financial educator at Take Charge America, a nonprofit financial advisory agency. based in Phoenix.

“This allows budget billed customers to accurately calculate utility costs when planning a budget. This turns a variable expense into a fixed expense and increases the chances of staying on budget,” says Maliga.

Utilities get this number by adding up the amount of money you spent on your service last year and dividing it by 12, to give you a monthly price to pay this year.

The predictability of budget billing can seem like magic to anyone who juggles bills and paychecks and consistently falls short, and it certainly has benefits, which may be worth a try. But as with anything you pay for, you’ll want to learn all you can about budget billing before you sign up. It may not be for you.

So what should you consider when it comes to budget billing? Several factors.

Budget billing is an educated estimate of what you need to pay for utilities, and unfortunately, there’s no free lunch when it comes to heating and cooling your home. You’ll end up paying the utility for every kilowatt of energy or drop of water your home uses.

After a year of budget billing, your utility will want to see how things are going in terms of usage and readjust your monthly bill. Some utilities call this “settlement month.” If you used more energy than expected by the utility company, you could end up owing money. The month of settlement could be quite expensive; if the utility bill during this 12th month is very high, you could find yourself in a financial bottleneck.

Likewise, what if you use less energy than your utility thought you would? Of course, that would be great news. You probably won’t get any money back, but your next bill could be much lower than it would have been – or next year your utility payments through budget billing could go down. Still, rather than guessing, you’ll want to ask your utility company.

Every utility is different, so they all run their budget billing programs a little differently. You’ll want to look at all the fine print or ask the customer rep what happens in a year if it’s determined that you’ve used more or less energy than you paid for.

While most utilities bill the budget for a year, where they have 11 months where you pay the same amount of money, then institute a “settlement month”, your provider may readjust your budget billing within a longer period of time. short. Maliga says some utility companies review their consumers’ usage quarterly.

You may prefer this arrangement, or you may hate it. In either case, you will need to confirm the settlement month on your utility payment schedule.

“Some utilities charge start-up fees and maintenance fees to use the budget billing option,” says Maliga. Obviously, if you have to pay even a few dollars a month in maintenance costs to help pay your utility bill, it might not make much financial sense to do budget billing.

Howard Dvorkin, CPA and president of Debt.com, a debt education website, isn’t a fan of budget billing if there’s a fee. He says that usually these fees are low, around $1 or $2 per month, but he would always try to avoid budget billing if you are required to pay a low monthly fee.

“Paying a fee for budget billing is pure profit for your utility company. No human being is working with you to save money,” says Dvorkin. “Of course, your bills are more predictable, but are you saving money or spending money for this nominal privilege?”

Most utilities offer budget billing programs to help their customers and avoid incurring administrative fees or other hidden charges. Chances are your utility won’t cost you anything, even if it seems like it does. Still, ask your utility if there are any fees associated with its budget billing program – just in case.

“Check to see if your utility company provides this service for free. If so, it’s worth it,” says Dvorkin. “Otherwise there is simply no use.”

If you’re stressed about high utility bills and your utility offers a budget billing program, it’s probably worth a try and see if it helps you manage your payments.

But what you don’t want is to get too comfortable with your budget billing program. Cozy, sure, but not so easy on your utility bills that you start leaving the lights on when you’d otherwise have them off, or start taking 20-minute showers instead of 10. (Just in case where you’d be curious, the average shower is eight minutes, according to the Environmental Protection Agency.)

If you’re starting to relax because you know you can pay your utility bills, you don’t want to forget that you’ll eventually have to settle with the utility company. Settlement month may work well, but next year your utility bills may increase if your usage is high. Budget Billing isn’t a license to go crazy with your energy usage, but it’s a great tool for managing your money.

If you’re feeling drained by the high cost of your utility bills, you should probably look into budget billing. It’s not fun to sweat because you’re afraid to spend money to freshen up your home, and it’s not fun to sweat over a utility bill either.