by Sommer Winters

Created on: January 25, 2009

Direct debit is an option extended to bank account owners that allows for bills to be automatically paid on a set payment date each month. There are many opportunities for consumers to take advantage of the convenience of direct debit, some of which are listed below:

- Utility bills, e.g. electric, home heating, water and cable/satellite service.
- Cell phone and internet service.

- Auto, homeowners and life insurance policies.
- Gym/health club memberships.
- Charity, religious organization and other scheduled giving.
- Mortgage and rent payments (if your lender or management company offers this service).

Signing up for direct debit for recurring bills is a phenomenal way to ease banking anxiety for a number of reasons, namely you never have to worry about a bill being late. This is especially important when taking things like auto and home insurance into account. Late payments mean a lapse in coverage and that can spell catastrophe in the event that you need it. Some agencies even offer a discount to policy-holders choosing the direct debit option.

Your wallet will benefit by way of reduced check printing costs and savings on postage stamps. Since direct debit is an entirely electronic payment system, the number of checks you write is reduced each month. Check printing fees have increased over the years, and the less checks you use, the less frequently you'll have to reorder. Consequently, fewer checks means fewer stamps, which seem to increase in cost year after year.

One very important benefit is security. Over the past several years, wily thieves have made a business of intercepting checks placed in the mail. Victims of this device find that their check has been altered to pay another individual. In an even worse case scenario, thieves use bank routing and account number information from the stolen check to create new blank checks and plunder the account. Simply put, the less exposure your checks have to the world, the safer your hard-earned money is.

Aside from all of the stated benefits, there are some drawbacks to this method of automated bill payment, the most obvious being that adequate funds must be available for each transaction. If you're operating on a razor-thin budget and an emergency drains your account, it could spell disaster. In many instances, direct debit may only be canceled with 30 days written notice, oftentimes too late to accommodate finance variances.

Though direct debit is great for non-fluctuating recurring payments, there is much more room for error when bills vary from month to month. This means that you must be much more diligent with reviewing bills. For instance, if your electric bill is automatically debited and it jumps $50 in one month, you must adjust your checkbook register for this change. Forgetting to do so could lead to bank charges related to overdraft fees if funds were not available and perhaps charges from the company as well.

Placing accounts on direct debit for payment can be an empowering solution to money management as long as the pros and cons are evaluated equally. Whatever your choice, always remember be a good steward over your money and review your bank accounts and bill statements regularly.

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