Budgeting for Energy

Fitting advanced payment energy plans into your budget seems like a no-brainer. The basic premise is that you pay a bulk amount upfront, and in return, the utility company rewards you with a discounted rate. An easy decision: pay less overall for what you know you will be purchasing within the next year, anyway.

Paying in advance, however, does not secure you a static, unchanging rate. So, if prices fluctuate up or down, your discount will slide up or down right along with it. Therefore, bulk pre-purchased energy should not be misconstrued as a fixed rate solution.

Since rates can (and probably will) fluctuate, the final true amount consumers will pay using this kind of scheme isn't set in stone. With this uncertainty, there can't really be any advantage to participating in this kind of a plan. Or, is there? 

The Direct Debit Scheme

In current practice, tariffs demanding a year's worth of payments upfront are rarely offered by power firms. Other schemes are more attractive to most consumers, so the popularity of paying utility companies a whole year's worth of energy upfront has waned considerably. 

Most consumers use the method of paying their power bills through automated direct debit transactions. This method typically offers consumers a discount, too; although not at levels as high as those from upfront bulk payment schemes. Direct debit arrangements do help consumers maintain control over their budgets, since the payments over the course of a year are leveled off to an average. So, instead of paying very small bills in months whens less energy is consumed, then lunging into very large bills when more energy is needed, payments keep an even keel, based upon an average figure. This helps consumers estimate how much money they need to keep in reserve each month to cover their gas and electric payments. [1]

A (somewhat) predictable monthly payment is usually far more within reach of the average consumer than a massive annual payment. All of these factors contribute to why more consumers embrace the direct debit method over the bulk upfront payment option.

So, why even consider making an annual upfront payment for your power usage? 

Fail Safe Mechanism

Whether people like to admit it openly or not, most folks know their own personal propensities for saving and spending. Everyone likes to make it appear as though all their finances are well enough managed, thank you very much; but in those quiet moments of personal reflection, each person does, at least to some degree, recognise his or her own financial foibles. 

Often, these foibles include a tendency to mismanage funds, even if on a small scale. You know the electric bill is coming due, but those shoes you've been dying to get are now on a special post-holiday sale, and you'll just never see them at that price again. So you snap them up, partially accessing funds that really should be reserved for the power payment. But, you tell yourself, you're expecting another paycheck before that bill comes due, and you'll make the difference up in time for that bill.

Now, maybe you do get that paycheck in time, and you do follow through on your promise to yourself--that's great. But not everyone has such an impeccable presence of mind at all times. Occasionally, dates for cheques to be sent slip through the cracks, or worse, an automated payment is put through that your account wasn't quite ready for; so, in addition to missing your bill payment, you also get dinged by your bank for a non-sufficient funds charge, which itself further adds a stain to your credit record.

You know yourself best. If you tend to just barely cover payments in time, or if you have a spotty record of making payments overall, then advanced payment energy plans might be your saving grace. This is particularly worth considering if your line of work is feast or famine. If you experience periods of bountiful employment, interspersed with periods of lack, then covering in advance those bills that pay for life's necessities may be your best course of action. Pay ahead when you have the means, and you won't have to dress by candlelight when your wallet is thin.

To Thine Own Self Be True

Don't immediately assume advanced payment energy plans aren't for you--they might prove to be your perfect solution. You know yourself best. Do plug in some numbers first, review your credit report, ask yourself some hard questions and determine whether the rewards are worth the sacrifice of plunking down a large chunk of change upfront

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