Should You Use Budget Billing for Your Utilities?

If you’re struggling to pay your monthly bills, whether it’s electric, gas or water, you should consider budget billing. But what is budget billing, you ask? And is budget billing worth it?

Budget billing can be an especially helpful tool when you’re able to pay your utility bills, and yet you’re still struggling to find the money for them. If you’re way behind, there are ways to get help in catching up on utility bills, like going to nonprofits that specialize in helping those with that specific need.

The cost you pay for electric, natural gas or water can vary mightily from month to month, depending on the utility you have, the part of the country you live in and especially how much energy you’re consuming.

Budget billing is a practice that many (but not all) utilities offer, where you will be charged the same amount of money for electricity, gas or water every month. Instead of getting a bill in the mail or email telling you that this month you’ll be paying far more than you did last month, every month in a row is the same.

“Rather than billing based on actual usage, budget billing relies on average usage to charge the same amount every month,” says Amy Maliga, a financial educator at Take Charge America, a nonprofit financial counseling agency based out of Phoenix.

“This allows customers on budget billing to calculate accurate utility costs when planning a budget. It turns a variable expense into a fixed expense and increases the chances of sticking to your budget,” Maliga says.

Utilities come up with this number by adding up the amount of money you spent on your service last year and dividing that by 12, to give you a monthly price to pay this year.

The predictability of budget billing can sound magical to anyone who is juggling bills and paychecks and constantly falling short, and it certainly has some positives, which may make it worth trying. But as with anything you pay for, you’ll want to learn everything you can about budget billing before you sign up. It may not be for you.

So what should you consider when it comes to budget billing? Several factors.

Find Out What Happens a Year From Now

Budget billing is an educated guess about what you need to pay the utility, and unfortunately, there is no free lunch when it comes to heating and cooling your home. You will end up paying the utility for every kilowatt of energy or drop of water that your home uses.

After a year of doing budget billing, your utility will want to see how things are going in terms of your usage and readjust your monthly bill. Some utilities call this “the settlement month.” If you used more energy than the utility company predicted, then you could end up owing money. The settlement month could be pretty expensive; if the utility bill during that 12th month is super high, you could find yourself in a financial jam.

Likewise, what happens if you use less energy than your utility believed you would? That, of course, would be fantastic news. You probably won’t get any money back, but your next bill might be far less than it would have been – or the next year of your utility payments through budget billing may go down. Still, rather than guess, you’ll want to ask your utility company.

Every utility is different, and so they all run their budget billing programs a little differently. You’ll want to look at any fine print or ask the customer representative what happens in a year if it’s determined that you used more or less energy than what you paid for.

Find Out What Happens a Couple Months From Now

While most utilities do budget billing for a year, where they have 11 months of you paying the same amount of money and then instituting a “settlement month,” your provider may readjust your budget billing in a shorter amount of time. Maliga says that some utility companies review their consumers’ usage quarterly.

You may like that arrangement better, or you may hate it. Either way, you’ll want to confirm when the settlement month is on your utility payment timeline.

Find Out if There Are Fees Involved

“Some utilities charge a startup fee and maintenance fees to use the budget billing option,” Maliga says. Clearly if you have to pay even a couple bucks a month in maintenance fees to make your utility bill easier to pay, it may not make much financial sense to do budget billing.

Howard Dvorkin, a certified public accountant and the chairman of Debt.com, a debt education website, is not a fan of budget billing if there is a fee involved. He says that generally these fees are low, around $1 or $2 a month, but he still would try to avoid budget billing if you are required to pay a low monthly fee.

“Paying a fee for budget billing is pure profit for your utilities company. There’s no human being working with you to save money,” Dvorkin says. “Sure, your bills are more predictable, but are you saving money or spending money for this nominal privilege?”

Most utilities offer budget billing programs as a way to help their customers and not to sock on administrative or other hidden fees. Odds are, your utility isn’t going to nickel and dime you, even if it feels as if that’s what they’re doing. Still, do ask your utility if there are any fees associated with their budget billing program – just in case.

“Check to see if your utility company provides this service for free. If so, it’s well worth it,” Dvorkin says. “If not, there’s simply no utility to it.”

Remain Energy Conscious

If you’re stressed out by high utility bills, and your utility offers a budget billing program, it’s probably worth giving it a shot and seeing if it helps you manage your payments.

But what you don’t want is to become too comfortable with your budget billing program. Comfortable, sure, but not so serene about your utility bills that you start leaving the lights on when you would have otherwise turned them off, or you begin taking 20-minute showers instead of 10. (In case you’re curious, the average shower is eight minutes, according to the Environmental Protection Agency.)

If you start relaxing because you know you can afford your utility bills, you don’t want to forget that eventually you have to settle up with the utility company. The settlement month may work out fine, but next year, your utility bills may go up if you’re usage is high. Budget billing isn’t a license to go nuts with your energy usage, but it’s an excellent tool for managing your money.

If you feel frazzled over the high cost of your utility bills, you should probably look into budget billing. It’s no fun breaking into a sweat because you’re afraid to spend money to cool down your home, and it’s no fun to sweat over a utility bill either.