Utilities' equal payment plans have flaws
|By Aviya Kushner Bankrate.com
Managing utility expenses by having equal payments throughout the year, or a balanced budget, sounds like a great idea at first -- the utility company charges you a set amount each month so your budget won't be bludgeoned by gigantic heating bills in winter or cooling costs in summer.
It all balances out because your bills are averaged over the year using the previous year as a guide.
But be careful. Equal monthly billing sometimes brings financial surprises, the very thing it's supposed to help you avoid.
If you use more than the monthly average of the total, what you or the prior resident spent the previous year -- which is usually how the bill is calculated -- the utility company might not tell you until the end of this year.
So in December, just when you're stretching to pay holiday expenses, you could suddenly get a bill for several hundred dollars extra, or worse.
Beware the debt cycle
In other words, with budget billing plans, even if you pay your monthly bill in full, you can still incur debt.
"When you're on budget billing, if you're paying $300 a month, then at the end of the year, you might owe them $600," explains Lisa Brinkley of Poughkeepsie, N.Y.
On her plan, "you either have to pay that $600 in full, or you can take that $600 and divide by 12, and you pay if off slowly."
Brinkley thinks of equal monthly billing as a short-term fix for rising costs.
"They're temporarily helping me," she says. "Then at the end of the year -- boom! -- it's going to go up again."
How to combat surprises
The first step when you sign up for any budget plan is to ask lots of questions, consumer advocates say.
"Find out how often that payment will be reset," says Ken McEldowney, executive director of Consumer Action in San Francisco, "and what will happen at the end of the year. Will there be a balloon payment?"
If you are on a plan, remember that not every company adjusts your bill regularly -- so call and ask for a detailed update.
"Monitor the ongoing progress of your equal payment plan," says Barbara O'Neill, financial management specialist at Rutgers University Cooperative Extension, and author of "Saving on a Shoestring."
"There is usually a summary of usage and payments on every billing statement," O'Neill says.
If your statement is a challenge to decipher, pick up the phone.
A utility representative should be able to tell you how much you actually are using, and how much you owe or are owed. So call often, and if it looks like you're going to owe some serious cash, start planning.
Every state is different -- so watch out
"It's entirely state-regulated," says McEldowney. "Late fees differ from state to state, and the fees for balanced billing differ from state to state."
That's right -- there can be fees by the utility companies to use equal monthly payment billing services. Some utilities charge you for averaging out your bill, so instead of saving money, you might be paying more for gas and electric.