The Benefits and Drawbacks of Budget Billing 2022

how does budget billing work

Utility bills! Ugh! There’s no escaping from them, it seems. They’re like a bad dream on a loop because they keep coming month after month. While we can’t get out of paying for our utilities, there’s a way to lessen the amount they drain from our monthly budget. That’s by availing of programs offered by some companies that provide the services we need in our daily lives. A great example of such a program is budget billing. 

You may have heard of it and you might be wondering if enrolling in the budget billing program will help you save on your energy bill. But is budget billing worth it? These important details we’ll share with you about how budget billing might assist you in making the right decision.

What Is Budget Billing?

Budget billing is a program designed by utility companies to level out the fluctuations in your monthly utility bills. With this program, you don’t pay for the costs of your actual energy usage. Instead, you’re billed a set amount each month from your power or gas company.  

The budget billing program takes the guesswork out of planning for your monthly budget for utility payments. That’s because you pay a specified amount every month despite the dips and surges in your energy consumption brought on by different reasons.  

How Does Budget Billing Work?

Throughout the year, your monthly energy usage typically varies. As the seasons change, you may use more or less electricity, for example. As such, you may find it difficult to predict how much you’ll pay for your next utility bill.   

In a budget billing service, the utility company determines your monthly average bill. They arrive at the figure by adding up the total of all your electric bills for the past 12 or 24 months, dividing the sum, and rounding up the result to the nearest dollar. That’s the monthly budget billing amount you’ll need to pay.  

That amount is not set in stone, however. It can change over time after your utility company reviews your actual usage. Your average monthly bill can go up or down depending on your new average consumption.   

Budget Billing: How Much It Cost?

Most utility companies offer the program for free. They use it as a means to assist their customers in planning their monthly budget. Budget billing also works for the company because it lessens the chances that their customers won’t settle their bills during periods of high power usage.  

Although the budget billing service usually comes at no cost to you, some utility providers do charge a fee when you enroll in the program. Check with the company you want to work with to find out if you’ll have to pay certain charges for budget billing. 

Benefits of Budget Billing

Without budget billing, your monthly bill fluctuates. That means you’ll need to keep a sharp eye on your consumption to ensure your budget won’t suffer when the time comes to settle your account. The upside of budget billing is that it addresses some of the hassles associated with bill payments. Here are some of them.

Monthly Budgeting Made Simple

Knowing the exact amount you’ll be paying each month makes budgeting simpler and easier. If you’re not in a budget billing program, you’ll have to wait for your utility bill to arrive before you can set aside the money for it.   

In contrast, with budget billing, you can plan ahead. This helps reduce the chances of getting charged with late payment penalties or having your service disconnected for non-payment.  

Avoid Paying Steep Increases

Your power usage naturally increases during the hottest and coldest months of the year. Using your air conditioning unit more often during summer and turning up the heat during winter can significantly raise your utility bill for the said months.  

When you avail of the budget billing service, your electric bill won’t suddenly spike upwards, even if your utility usage does. However, keep in mind that your extra consumption adds up, so be prepared to pay extra later.

Ensures You Pay On Time

Knowing in advance how much your bill for the month is makes it easier to allocate the needed amount when planning your budget. That means you’ll have the money on hand when it’s time to pay your utilities. If you’re not enrolled in the budget billing program, you may not have enough funds to cover an unexpectedly high energy bill.   

Potentially Saves Money

The budget billing program does not offer reduced rates for your energy consumption. Still, it can help you save money on your utilities.  

With a predictable bill, you know how much you’ll be paying even before your account arrives. As such, you can set aside the amount when you plan your budget for the month. This makes it less likely for you to incur late payment fees or reconnection charges (if your service gets disconnected). These potential costs are the green bucks you save when you enroll in the service.   

Drawbacks of Budget Billing

Despite the advantages of the program, budget billing is undoubtedly not a fits-all proposition. It also has its drawbacks, which you’ll need to weigh against the benefits to ensure you’re getting a great deal. Let’s dig into some of the disadvantages of budget billing.

Fees May Apply

Like we mentioned at the start, although most utility companies don’t charge any fees when you avail of the service, others may subject you to specific payments. These can include administration, maintenance, and cancellation fees. Other companies may charge you extra if your power usage goes up. Even if some expenses are minimal, they can add up and inflate your bill. Better play it safe and inquire from the utility provider’s customer service department.  

Can Result in a High Year-end Bill

You might not notice the increase in your energy consumption if you’ve been paying a set amount each month. Since the budget billing program averages your monthly usage, a steep rise in your electricity use can lead to higher payments in the subsequent billing cycle.   

Can Induce People To Use More Energy

You might not be as strict with your energy use when you’re under a budget billing service. For example, keeping the air conditioning on even when you’re not home might not seem like a big deal since you pay the same amount every month. However, the extra consumption adds up over time and can shift you to a higher budget billing rate.  

What To Think About Before Signing Up

budget billing vs flat bill

Although budget billing sounds like a good option, it may not work out for everyone. If you’re thinking of signing up for the program, find out if it will fit your needs and situation. Let’s look at some things worth considering.  

Learn What Happens With Incorrect Company Estimates

Some utility providers charge extra if your consumption goes way over their estimate. If yours does, you usually have to settle the amount at the end of the year, so be sure to factor that in when you make your budget. Doing so ensures that you have extra money to settle the increased budget billing amount.  

Alternately, find out what happens if you consume less than what the utility company estimated. Will they reimburse the excess, or will they apply it to the next billing cycle? You won’t lose out either way. Still, it’s a good idea to understand clearly what your agreement states. 

Be Mindful of the Monthly Fees

Although utilities usually offer budget billing for free, some may charge some fees. Before signing up, find out what those fees are and what they cover. The amount usually varies from one company to another but paying over $3 a month maybe too much. Remember that budget billing doesn’t offer you lower rates but only evens out your monthly payments. As such, it shouldn’t require high fees to use the service.  

If you plan to sign up for budget billing over the phone, don’t agree to the terms without first seeing them in writing. Ask for a copy of the terms and conditions, which the company can send to you via traditional or electronic means.  

Read and Understand Your Contract

This is not the time to practice your speed-reading skills. Carefully read the terms and conditions stated in the contract before affixing your signature. You will usually have to stay in the program for at least a year so think of what can happen within that time span.   

Do you have plans to move? Then check if your utility charges a fee for early termination.  Most companies require you to pay a certain amount if you end the contract before the specified term.

Other Factors To Consider

Aside from the usual considerations, there are other details you might overlook while you’re making your decision. Examining these details can help you determine if budget billing is for you and which company you want to work with.

Administration Fees

Most utility companies charge an administration fee when you avail of the service. The amount varies among the various providers, so check how much the add-in will be. Still, it shouldn’t be more than $2-3 a month.   

Refund Policies

You’ll likely pay extra for high power usage. But what happens if you use less energy than what the utility provider estimated? Some companies will either refund the excess payment or apply it to succeeding bills. With other providers, you won’t get anything back if your consumption falls below the expected level.  

How Do You Get the Most Out of Budget Billing?

Budget billing may not save you money per se. That’s because signing up for the program won’t give you discounted rates. Still, there are ways to get added value from the program.

Evaluate the Budget Billing Plan Closely

Although most utilities follow the same pattern regarding budget billing, they may differ in some aspects. These include the fees, refund policies, termination costs, and the like. To make sure that you pick the best choice, review the plan each utility offers before coming to a decision.  

Increase Your Credit Score With On-Time Utility Payments

One benefit of on-time utility payments is an increased credit score, which is one of the indicators of your financial health. At a glance, your credit score will tell lenders what kind of borrower you are. A higher credit score makes it easier for you to get approved for loans or lines of credit.  

Being enrolled in budget billing doesn’t automatically raise your credit score. However, because the program makes it easier to plan your budget, you can set aside enough money for your bills and pay them on time. A history of paying on time helps improve your credit score.  

How to Save Money on Your Monthly Energy Bills

is average billing worth it

Whether you save money or not through budget billing, it still makes sense to reduce your monthly energy bills. Fortunately, there are easy ways to do so. Let’s discuss some of them.  

Switch off the Lights

Your lighting fixtures may not consume significant amounts of power, but those kWh add up over time and inflate your energy usage. Thus, one typical hack to reduce your power bill is by turning off the lights in unused rooms or when you leave the house.  

The kind of bulbs you use also affects your power consumption. LED lights consume less electricity than incandescent. As such, swapping out your traditional bulbs for LED ones can lead to lower power consumption.   

Adjust Your Thermostat

Keep your energy costs in check by lowering your thermostat setting during the cold winter months and raising it on hot summer days. Every degree counts and will make a difference in helping you save money on your power bills. Just think. You can save between 1-3 percent on your consumption for every degree you dial down your thermostat.  

Alternatively, you can try lowering the thermostat at night and use blankets or comforters to keep warm. That will possibly make a small dent on your electricity usage.

Make Use of Your Crockpot

Because they’re more energy-efficient, crockpots require less electricity to run than an oven. Thus, it makes sense to use one as much as possible instead of your oven.   

Aside from consuming less electricity, having a crockpot on hand can also lower your grocery bills. You can buy cheaper cuts of meat and tenderize them using this cooking equipment. That adds to the money you save on your power bills.

Maintain Your Heating and Cooling Systems

Heating and cooling systems that aren’t running at their best can lead to higher power bills. For example, dirty air conditioning filters will reduce airflow and make it harder for the unit to cool your home. Cleaning the filters regularly (once a month) can reduce the air conditioning unit’s energy consumption by around 5-15 percent.  

Have your HVAC system serviced by heating and air conditioning experts once a year to keep it in good working condition. A well-maintained system is usually more energy-efficient than one that suffers from some issues.

FAQs

How do I know my billing rate?

The utility company usually determines the budget billing amount based on the expected energy prices and the history of your power usage. Some providers compute your monthly bill based on 12 months; others use your historical usage for 24 months. If you’re a new customer, the historical data associated with your meter becomes the basis of the company’s computation. 

What is a budget billing plan?

This is a plan where the utility company determines a set amount you pay each month. The cost is based on your power usage over a specified period. Anticipated energy costs and expected weather patterns in your area are also factored into your budget bill.  

What happens if I cancel budget billing?

What happens after you cancel your plan depends on the utility company. Some will charge you a fee, especially if you terminate the contract earlier than what the agreement states. Others will simply require you to pay the amount you owe. 

Do you pay more with budget billing?

Budget billing smooths out your monthly charges. It doesn’t let you save on electricity rates, nor does it add to them. You pay more if your consumption increases, just like with a regular utility account. However, with budget billing, you’ll pay for the extra expenses at a later date, usually at the end of the year.  

Conclusion

If you want some predictability in your monthly payments, signing up for a budget billing program might work well for you. Otherwise, you can create your personal budget billing plan. You do this by opening a savings account and depositing into it an amount equal to your highest utility bill every month. This ensures that you’ll have the money to pay for your power expenses without incurring extra charges from your energy provider.  

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