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21/12
2019

Money-Saving 101: What Are the Benefits of Direct Debits?

Money-Saving 101: What Are the Benefits of Direct Debits?

Direct debits have grown in use and functionality over the last several years. But despite their adoption, there are still some apprehensive about turning over withdrawal capabilities to an external party. 

What if they take too much? What if there isn't enough money to cover my debt? In the following article, we'll be covering the various benefits of setting up a direct debit, but first, let's deal with the potential issues.

Who Should Use a Direct Debit? 

We would contend that everyone should use direct debit. But there is the possibility you're not quite ready for it.

To get the most from the benefits, which we'll go over in a bit, let's first see how you're measuring up. Do any of these apply to you? 

Consumers Who Are Financially Sound

Direct debiting requires a certain degree of financial strength. After all, you're giving a third party the ability to remove funds from your account to assuage an agreed-upon debt. 

You want to make sure the money's actually in there! So do a financial assessment on yourself and see if you can safely afford to make all the due dates.

People Who Can Commit to a Budget

Budgeting is one of the most important steps anyone can take when it comes to saving money in general. It's also important for the process of completing direct debit transactions. 

A firm grasp on expense amounts, due dates, and paydays is required. Otherwise, you'll struggle to keep money in your account. And that could create a problem we'll go over in the next section. 

Those Tired of Living on Credit

An inability to manage paydays versus expenses can lead to a vicious cycle of credit use. Once you use the plastic once, it becomes easier to use it again, probably on purchases you don't really need.

Getting off the credit merry-go-round is a significant factor that leads many to choose direct debit for their personal or business finances. Once you get into the routine, it's much easier to maintain a healthy level of awareness and decision-making with your finances.

Anyone Who Values Their Time

Paying manually has improved since the use of checks scaled back with the rise of online payments. But direct debiting gives you the ability to take it a step further and cut out the time involved in the following: 

  • Entering your card or account number
  • Entering expiration dates
  • Entering three-digit verification codes
  • Entering routing numbers if applicable

Your time is important. Stop spending so much of it on things you don't like doing. And most ordinary people hate making bill payments.

How It Works

What is a direct debit? It's an agreement typically set up between the consumer and the debtor. Most require something like a voided check or a signed form of consent that meets with your bank's approval.

Check with your bank to see if any additional instructions are required. Once it's set up, you'll start reaping these benefits.

1. Reclaim Your Time

We've alluded to how direct debit transactions can reclaim your time by helping you spend less of it setting up the transaction. But there's another way it can help with this as well.

It takes away all the time you spend about having to do the bills. And that can be somewhat consuming when you feel like your finances are uneven. 

2. Avoid Late Fees

Learning how to set up a direct debit also can mean that you never pay another late fee for as long as you live. Late commercial payments allow for the charging of late fees and/or interest.

Recurring lateness can cost you hundreds of dollars per year. Even if you live on a tight budget with the occasional overdraft, it's much cheaper to pay on-time, every time. 

3. Reduce Your Charges

Forget about late fees and interest for a moment. Direct debit charges can save you money through small monthly discounts for paying on time. Many companies offer this to their customers as a way to encourage direct debiting and ensure their own cash flow. 

4. Improve Your Credit Standing

Making more on-time payments does two things. It ensures that accounts will be paid off when they're due, and it will prove to your creditors that you are someone trustworthy of loaning money. This better enables you to join the millions of Brits committed to buying a home.  

5. Safeguard Transactions

Another positive of a direct debit account is that it does not have free reign over your account. If a transaction is fraudulent or mistaken in some way, you can more easily prove this and get your money back. It creates a record that is far more secure than paper transactions. 

6. Maintain Control

Another benefit of trying out direct debiting is that you're not selling your soul for the sake of convenience and security. You can turn it off at any time should it not work to your advantage or should you wish to wrest more control over your account. 

7. Stop Depending on Credit Cards

It's very easy getting roped into the use of credit cards. Fear of late payments and overdrafts can cause many to whip out the plastic or direct online payments to credit. 

The trouble with that is credit makes it way too easy to spend money you don't have. You've got to step off the wheel at some point, and direct debits give you the opportunity to do that. 

8. Focus More on Earnings

Lastly, there's the earnings aspect. Many people see their income and productivity suffer when they spend all their time worrying about bills.

Take that fear off the table and apply the extra time to create additional revenue streams. Or, restructure the way you shop for everyday items to create more room in your budget.

Direct Debits Can Remove Stress from Your Finances

A cluttered financial existence causes you to become less productive and miss savings opportunities. It can also lead to paying more than you should in fees, interest, and other charges.

Direct debits offer an effective way to combat it. Contact us today to learn more about this and other ways to stretch your dollars.