ENERGY bills are predicted to hit £5,300 this winter and thousands of people are threatening not to pay.
The energy price cap is now set to rise every three months from October – meaning households will face more frequent price hikes.
Brean Horne explains why cancelling your direct debit could do more harm than good
Some customers are already seeing increases to their direct debit before bills are set to hit £3,628 from October.
Customers of British Gas, Bulb, Ovo and Scottish Power have taken to social media to complain of crippling bill hikes.
And a campaign calling on people to “Don’t Pay” their energy bills this October has the backing over 108,000 people as of today.
However, experts have warned households time and time again that the new viral trend comes with dangerous consequences.
Customers who don’t pay their bills could face debt collectors, marks on their credit score that last six years, and risk being shifted on to prepayment meters.
Brean Horne, personal finance expert at comparison site NerdWallet, looks at five of the key risks of not paying or cancelling a direct debit with your current energy supplier.
She said: “While the government plans to offer a £400 energy bill discount this winter, it doesn’t go nearly far enough to cover the staggering increases that many households face.
“Although some consumers may be tempted, to follow the ‘Don’t Pay’ movement, there may be dire long-term consequences.”
Our expert lists five of the biggest consequences you could face if you stop paying your bills in October without a valid reason.
1. You’ll face non-payment fees
If EDF customers do not pay by their due date, they may be charged late payment interest at 4% above the Bank of England rate on the amount they owe.
This works out at 5.75% when taking into account the current base rate. EDF customers will also be charged an administration fee of up to £30 per bill.
Scottish Power introduced late payment fees back in June.
A £10 fee will be put on the bill if it’s not paid within 14 days of the due date.
If it still goes unpaid after 28 days, customers will be expected to pay a £20 “escalated recovery action fee”.
And a missed direct debit payment will set you back £5.
Brean said: “Suppliers usually charge customers hefty non-payment fees. Energy customers face additional fees if they avoid paying their monthly direct debit.
2. You’ll face higher bills when using other payment methods
We’ve previously reported that paying your energy bills by direct debit can save you up to £100 a year.
Brean said: “Direct debit tends to be the cheapest and most convenient way to pay for gas and electricity.
“But your supplier is likely to send you bills at a much higher rate if you cancel.”
According to MoneySavingExpert.com, paying by direct debit is around 6% cheaper than paying by credit or debit card.
Paying by direct debit also makes it easier for energy firms to refund any overpayments made – as they’ll already have your bank account details on their systems.
3. You could be forced onto a prepayment meter
HOAR put out a warning this week that customers with smart meters must not cancel their direct debits – as they could be forced on to a prepayment meter.
Prepaying your energy is also more expensive. The current price cap for those on a prepayment meter is £2,017 – some £46 more expensive than it is for those on the standard variable rate.
Brean said: “If you have arrears and do not arrange to start paying back what is owed, your supplier can begin the process of moving you over to a prepayment meter. “
Traditionally this is done via a court warrant so they can enter the property to install the device.
However, many with smart meters may not know that this can be done without needing to enter the home, and that prepayment meters are more expensive.
Smart meters can be switched between prepayment and credit mode remotely by suppliers.
4. Your credit score will take a hit
Households which refuse to pay their energy bills will receive a mark on their credit file.
Brean said: “Missed payments and defaults on an energy bill can also cause harm to your credit score, in a similar way to missing a payment for a loan or credit card.
Tara Flynn, co-founder of energy comparison site, Choosewisely.co.uk, previously told HOAR that if you continue to ignore debt letters you may receive a County Court Judgment (CCJ).
And unless you pay what you owe within 30 days of receiving a CCJ, it will stay on your credit report for six years.
5. Say goodbye to the best credit cards, loans and mortgages
With the above in mind, Brean said: “Having a poor credit score can make securing finance from a lender much more difficult because it indicates you may struggle to pay back what you borrow based on your payment history.”
You’ll be lucky to get your hands on the best rates when it comes to borrowing if your credit score is poor.
And if you need a mortgage with poor credit you’ll be expected to put down quadruple the deposit to secure a home.
What help is available?
The exact help your supplier can offer will depend on your circumstances, and can range from grants and vouchers to repayment plans.
If you fall behind on your bill, one way an energy supplier can help is by arranging a repayment plan.
It means you agree a certain amount of the debt you pay back each month on top of your normal bill.
But this will have to be affordable for you.
If you’re asked to repay an amount you think is unaffordable you can tell them this and they should take this into consideration.
Energy suppliers are also offering cash grants to those hardest hit by bill rises.
For instance British Gas is giving out up to £1,500 through its hardship fund.
But the amount can vary according to your supplier and your circumstances.
Ask your supplier what’s on offer and how to apply, or check here:
- Bulb energy fund
- EDF’s energy customer support fund
- E.on’s energy fund
- Npower’s energy fund
- Ovo’s debt and energy assistance
- Scottish Power’s hardship fund
Cold weather payments up £25 a day are also on offer when temperatures plummet below zero for households on low incomes.
The payment is made automatically, including to those on Universal Credit, for each seven day period of low temperatures between November 1 and March 31.
Anyone getting the state pension should also get winter fuel payments worth £100s. Winter fuel payments are a tax-free payment that comes from the government each year and is worth between £100 and £300.
In terms of council funds, the Household Support Fund helps families with the rising cost of living, has been extended.
To find out what support is available in your area, contact your local council.
