Automatic bill payments
Direct debits can help you organise your finances. Make sure you
understand how they work and what to do if you want to cancel
How direct debits work
When you set up a direct debit, you are allowing a service
provider, such as your private health insurer or your gym, to
automatically withdraw money from your account at set times to pay
your bills or make your loan repayments.
Direct debits or automatic payments can be a good way to manage
your money, but they can become a problem if you don't have enough
money in your account or you need to cancel the direct debit.
How to use direct debits
You can fix your direct debit at a certain amount, say $70 every
period, or opt for a variable amount, where the merchant will
deduct the exact amount of each bill. You can also choose if the
direct debits come out at regular intervals or set dates. If you
choose a variable payment make sure you always check your bill
before the amount is deducted so you know how much is being taken
It's a good idea to set a fixed amount if possible and a fixed
date for your direct debits. Set it up for the day after your
payday. This will mean you will always know exactly how much money
is coming out and you will definitely have enough money in your
account to cover the bill.
Alternatives to direct debits
Direct debits can be a convenient way to pay your bills, but
they take the control of making payments away from you. If a
business offers a discount or cheaper rate for setting up a direct
debit, ask if you are eligible for the same discount if you set up
an automatic payment through your online banking.
While a direct debit is controlled by the company you are
dealing with, you are able to start, stop and change an automatic
What could go wrong
Monitor your account so you know when money will be debited and
how much you need to keep in your account to cover your bills.
Before you set up a direct debit, make sure you trust the direct
debit service provider. After all, you are allowing them to take
money from your account.
Even though it can be dull, read the service
provider's terms and conditions. It can save you pain and
money in the long run.
Before agreeing to a direct debit ask yourself:
- Do you trust the service provider you are dealing with?
- Do you know how to cancel the direct debit if you decide you
don't need it anymore?
- Are there other ways to the pay the business other than direct
Be wary if you are being pressured into setting up a direct
debit and are given no other payment options.
Check your account and bills
Mistakes can happen so check each bill to make sure you aren't
wrongly charged for anything.
If you don't have enough money in your account to cover the
direct debit, you may end up being charged a dishonour or overdraft
fee by both your financial institution and
How to cancel your direct
If you decide to cancel your direct debit, you
should notify your financial institution in
writing. Note in the letter what date you would like your
direct debits to be cancelled and ask for a letter from your
financial institution confirming your request.
Once your financial institution has received your
instruction letter, they are obliged to make sure no more payments
are debited from your account. They must also forward your
instruction to cancel the direct debit to the service provider's
It's also a good idea to notify the direct debit service
provider in writing and a keep a copy of the letter you send. You
will be able to find the service provider's details on the form
that you signed to authorise the direct debit. Use the template
What if the direct debit is not cancelled
If your financial institution does not cancel your direct
debit and your account is debited after you have requested it to be
cancelled, your financial institution can't charge you
overdraft fees to cover the debit. If you are wrongly charged, you
should make a complaint and your financial institution should
reimburse your account. See how to complain.
Cancelling a direct debit that is linked to a credit card
There are different requirements for cancelling a direct debit
that is linked to a credit card. When cancelling these types of
direct debits, you need to write a letter to both your financial
institution and the merchant, to stop the direct debits.
Use our sample letters to help you cancel your direct debit:
Sample letter to service
provider to cancel direct debit
Sample letter to bank
to cancel direct debit
Make sure you keep a copy of the letters for your records.
Dealing with problems
If you check your bank statement
and spot an incorrect charge or an unauthorised direct debit from
your account, you should contact your financial
institution as soon as you can. If you are unhappy with
your their response, you can make a complaint
to a dispute resolution scheme.
If you are thinking of using direct debits, set
them up in a way that fits your budget and set it up so the money
is withdrawn on the day after payday. This will reduce the risk of
not having the money needed in your account. Monitor your bills and
accounts regularly to make sure the right amount is being
Last updated: 18 Feb 2016