What Is Budget Billing for Utilities?

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Budget billing takes the guesswork out of planning for utility costs by allowing you to pay a set amount each month. With budget billing, you continue to pay your bill as usual each month and receive alerts anytime the set amount is scheduled to change.

Wondering if it's right for you? Read on to learn more about how budget billing works and how to decide if you should enroll.

How Does Budget Billing Work?

Budget billing allows you to pay a set amount for utilities, such as electricity and gas, each month. The service makes energy costs more predictable for consumers, despite fluctuations in energy usage as seasons change.

With a budget billing program, your utility company will review and average energy usage at your home for the past 12 or 24 months. If this information is unavailable, they will use figures from the last occupant's usage. The average monthly cost and anticipated energy prices are then used to calculate your new monthly bill under the budget billing plan, and you'll pay a set amount each month.

Over time, your monthly payment could change as your utility company computes new averages. Some companies make adjustments quarterly, while others review usage and change the monthly billing amount annually if necessary. In either case, you will get a notification regarding the new bill amount and whether it will increase, decrease or stay the same.

You can sign up for budget billing by contacting your utility company online or by phone. Typically your account needs to be in good standing to be approved for the program. Your utility company may charge a small fee to enroll, and you will continue to make payments as usual—either online, by phone or by U.S. mail. If you fall behind on payments, you could be removed from the program.

Pros and Cons of Budget Billing

There are some benefits and drawbacks to consider before enrolling in budget billing.

Pros:

  • Makes your utility bills more predictable. Budget billing gives you a set figure to work into your budget each month instead of waiting to find out what your charges are based on your usage. It can also reduce the possibility of late payment penalties or possible disconnection since you'll be able to more easily budget your payments.
  • Alleviates stress. You won't save money on your energy costs overall by enrolling in a program, but you may avoid the stress of not knowing what your bill will be or whether you'll have enough funds to pay it. So, when temperatures spike or drop, you won't have to panic.

Cons:

  • Fees may apply. Some utility providers charge a fee to use budget billing. Inquire with your utility provider's customer service department about potential startup and maintenance fees.
  • Potential overpayment or underpayment. It's important to find out what will happen if your energy costs are more or less than your utility company predicts. If you use less energy than your utility company estimates, will you be credited, and when? On the flip side, if you get to the end of the year and you use more energy than the company predicted, you may owe money for overage. Be sure you understand exactly what is in the contract with your utility company.
  • Risk of elevated costs in the future. If your new set payments make you feel freer with energy usage, you could end up with significantly higher payments in subsequent cycles. Review your monthly bills to monitor your household's energy consumption: Steep increases could mean you'll pay more in the future.

Is Budget Billing Right for You?

If you want a consistent utility bill each month, budget billing may be right for you. You can also take a do-it-yourself approach to budget billing without getting your provider involved.

To do so, take your last 12 bills, add them up, divide by 12 and allocate this amount each month in your spending plan. Set aside money in the months when your energy costs are lower so you'll be able to afford payments in the hot summer months or cold winter months when you crank the air conditioning or use the heater.

If you decide to give budget billing a try, be sure to read your statement each month to ensure you're being billed correctly, and know the details of the service so you'll be ready in the event you have to pay overage costs. Contact your utility provider right away if you don't understand your bill or notice any issues or discrepancies.

How to Increase Your Credit Score With On-Time Utility Payments

Whether or not you enroll in budget billing, your on-time utility payments could help improve your credit history. Consider signing up for Experian Boost to get credit for your on-time utility bills payments, as well as phone and streaming service payments. It's free and could possibly increase your credit score immediately.

If you experience financial hardship and can't pay your bill on time, contact your utility provider right away. They may be open to working out a payment arrangement to help you avoid late fees, penalties and disconnections. Doing so could also prevent your account from being sent to collections and potentially damaging your credit rating.

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