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
What is a direct debit?
A direct debit is an automatic transaction that transfers money
from one person's account to another. Direct debits are processed
electronically and are typically used for recurring payments, such
as your private health insurance or gym membership.
Direct debits can be a fixed amount or a variable amount,
depending on the type of service you are using it for.
How direct debits work
When you set up a direct debit, you are allowing a service
provider 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 set up a direct debit
There are two ways you can set up your direct debit:
- You can fix your direct debit at a certain amount, say $70
- You can 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 out.
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.
Is a direct debit your best option?
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.
The company you are dealing with controls the direct debit, but
you can start, stop and change an automatic payment yourself.
Things to consider when
setting up a direct debit
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 bank account and bills
Mistakes can happen so check each bill to make sure you aren't
wrongly charged for anything.
You should also monitor your bank account so you know when money
will be debited and how much you need to keep in your account to
cover your bills.
If you don't have enough money in your bank account to cover the
direct debit, you may end up being charged a dishonour or overdraft
fee by both your financial institution and the merchant.
How do you stop a direct
If you decide to stop a direct debit being taken from your
account, 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 financial
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 sample
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.
Sample letters to cancel a direct debit
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.
Problems with direct
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 their response, you can make a
complaint to a dispute
If you are thinking of using direct debits, set
them up in a way that fits your budget. Monitor your bills and
accounts regularly to make sure the right amount is being
Last updated: 30 Aug 2017