Direct Debits: Guide To Paying Via Direct Debit

Using direct debit can be an easy way to pay your bills. Read our guide to understand how to pay your bills via direct debit and how direct debits work.

There are a few things that you should look for before signing any contract to make sure that your money remains safe, you don’t incur any extra charges and you get the most out of the agreement.

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When you make an arrangement to withdraw money directly from your credit card or bank account with a third-party, this is called a direct debit. You can pay either fixed amounts or variable amounts depending on the bill.

Utility bills such as telephone or electricity are usually variable, while car or health insurance is usually fixed. You will get a bill stating the date and amount for any variable amounts. Some banks will charge you a fee for processing a direct debit.

Potential problems with direct debit:

If you are not sure about the service provider or merchant that you are dealing with, there is a possibility that amounts may be withdrawn that are unauthorized, by merchants that are not trustworthy. Make sure that you read all of the agreement in full before signing over control of your finances to a third-party. If you do get an incorrect direct debit amount it can take a lot of time to get the problem straightened out.

You should try and get the direct debit to be withdrawn on a fixed date, preferably after you have received a paycheck and are sure that you can make the payment. You may get hit with a dishonor fee if that direct debit does not go through, both from the merchant and from your bank. It is possible that the bank may charge default interest and a fee for overdrawing if they decide to honor any direct debits.

It is easier to budget for a fixed direct debit then for a variable one. If you do sign up for any variable direct debits you can ask the merchant you are dealing with if it is possible to cap it with a maximum amount. Also, you should be sure that you get a copy of the bill beforehand so that you will know how much you will need to have in the account.

Canceling

A direct debit can be canceled by sending a letter to the bank and/or the merchant. In all cases it is best to let both of them know. If you do a cancellation to the merchant it may not go into effect for several days or longer. In many cases it is easier and faster to do it through the financial institution because you will simply need to fill out a special form. Even if you are told that you must do it with the merchant, you can do it with the bank, but you may have to pay a fee. Always request the cancellation in writing and be sure to keep a copy of it.

It is harder to get a cancellation on your credit card for a direct debit. In this case you will need to send a cancellation notice in writing to the merchant and provide your bank with a copy. If there are any subsequent direct debits made you can file a dispute with your bank.

In most cases you will be given a chargeback and the amount will be credited back into your account. The bank will do this while it is investigating the situation, and if it finds in favor of the merchant then the amount credited will be deducted from your bank account. If the bank finds in your favor, the chargeback will remain in your account.

Disputes

The first thing you should do if you are not happy with the direct debit situation and how it is resolved is to contact your bank’s head office and complain. If that doesn’t help you can get hold of the Credit Union Dispute Resolution Centre at www.cudrc.com.au or the Banking and Financial Services Ombudsman at www.bfso.org.au.

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