Direct debit: definition, how to configure & cancel
photo by Caspar Camille Rubin to Unsplash
Read our simple overview of the basics of direct debits, including the dangers they present.
Do you have a Netflix account? Have a newspaper delivered? To pay for health insurance? If so, there’s a good chance you have a direct debit, even if you aren’t 100% sure what the term really means.
Direct entry payments (direct debits made with both debit cards and credit cards) are an important component of the Australian payment network. According to the Australian Payments Network, the annual value of these debits is over $ 15 trillion.
But how exactly do direct debits work and what are the dangers of using them? We will take a look.
What is a direct debit?
A direct debit is an automated transaction made from one account to another, processed electronically. They are commonly used for recurring payments, such as:
- Mortgage repayments
- Insurance premiums
- Utility bills
- Subscriptions (Netflix, Spotify, etc.)
- Rent payments to roommates
- Gym memberships
- Telephone and internet bills
You got the idea. But one-off payments you make to friends or family aren’t direct debits, just those that happen frequently and don’t require manual payment.
Depending on the source of the levy, it may be a fixed or variable cost.
Plus, they don’t necessarily have to be done with a debit card or transaction account either. This can also be done through a credit card, which can be confusing when the term “direct credit” appears.
What is direct credit?
Direct credits are normally payments in Your account. They are used by businesses to make regular payments to transaction accounts – your salary, for example, is a direct credit. Here are other examples of direct credits:
- Benefits of Centrelink
- Tax refunds
- Shared dividends
So think of direct debits as cash outflows and direct debits as cash inflows. You’ll likely have a lot more direct debits than direct credits, but if you’re saving the money, value of your direct credits must exceed that of your direct debits.
How to set up a direct debit
Setting up a direct debit will be different for each business depending on what they sell, how much you pay, and how often. But the general process will be the same:
- You enter your credit card / debit card details when shopping online, or;
- You provide your credit / debit card details on a paper form or in person when you buy from a physical store.
The information you need to provide depends on whether the direct debit is from a bank account or from a credit or debit card:
Commonly Required Details for Direct Debit from a Bank Account
- Account number
- Account name
Commonly required details for direct debit via recurring credit or debit card payment
- Your card number
- Name on the card
- The expiration date of the card
- CVV number (the three digits on the back)
Direct debits are easy to set up, which can be problematic for people who are either strapped for cash or who can’t be trusted (hello credit card debt?). Fortunately, they’re also just as easy to undo.
How to cancel direct debits
When times are tough or you just don’t want to keep paying for a service you no longer use, it’s easy to cancel a direct debit. Usually you have to cancel them with the merchant you are paying money to and to start a direct debit payment you probably had to create an account on their website to start one.
So you just have to log back in and find the section where you can cancel or postpone your payments. Obviously that will mean you won’t have access to this service again when the money stops leaving your account, but that’s why you wanted to cancel anyway, right?
If they don’t have any online activity, write to them in person or call / email them to cancel. As a customer, you have the right to cancel your direct debits at any time.
Banks are currently unable to cancel direct debits on your behalf in most cases.
What are the dangers of direct debits?
Having money automatically coming out of your bank account at regular intervals obviously presents certain dangers.
The organization might not be trustworthy
This is just a precaution, but always make sure to trust the service provider and do a quick scan of their website and terms and conditions (terms and conditions) if you are not convinced that they are. This is a reputable buyer. Everyone knows that Netflix is a reputable company that won’t steal your money, but a site like www.thisisprobablyascam.com (not a real website) might not be that clear. So dig a little deeper, perhaps by checking out the reviews online, to see how reputable and safe they are.
If you get ripped off then you have lost money and now you are faced with the reality of a dodgy website having your card information.
You lose control of your spending
Gone are the days when households wrote checks and sent them to individual traders and banks to pay their bills. Now everything is automated which a lot of people definitely prefer. After all, direct debits make payment much easier, but it can lead to a ‘set and forget’ mentality.
Back in the days of checks, people knew exactly how much was coming in and how much was going out, but nowadays a lot of people just have no idea. A study conducted by UBank at the end of 2018 revealed a 86% of people don’t even know how much they are spending.
Keeping records, tracking your expenses in an Excel spreadsheet, or using some of the popular budgeting and expense tracking apps available can help you stay on top of your expenses in the age of direct debit. You can also ask your bank to provide you with a list of your recurring withdrawals and credits.
Beware of subscription creep
Subscription creep is when more and more subscriptions add up over time without you realizing it. They can sneak up on you! You might be okay with paying for a monthly Netflix subscription. Then you decide to get Stan because you want to watch You better call Saul or the collection of Disney-Marvel movies that your Mouse Overlord (Mickey) put out there. Then you decide to lose some of that Christmas weight and join your local gym. Then you decide to get a new health insurance policy billed monthly. Then you decide to …
In no time at all, you have over a dozen subscriptions each month, each taking over $ 10 from your bank account. A dozen $ 10 subscriptions costs $ 120 per month, or $ 1,440 per year.
So audit your subscriptions to see which ones you might be without and which ones you don’t even remember paying for. all it was worth.
Move them when you change banks
If you are one of the 40% of people who still have the bank of their childhood, it might be time you have moved on to another. But once you find your new account, you need to transfer all direct debits from your existing account unless you intend to keep it. Direct debits from a closed account can result in late fees from the merchant, overdraft fees from your bank, and the potential cancellation of this service.
When switching, you can ask your bank for a full list of the last 13 months of direct debits, or you can upload your transaction history to online banking and take a look for yourself. As part of the ASIC reforms implemented since 2012, banks must support you in your desire to change, whether it is simply to download a list of your direct debits or to contact each beneficiary and update your contact details. for you.
Note that there may be different rules depending on whether the debit is made from your account (i.e. using your BSB and your account number), or directly from your credit or debit card (e.g. example Visa or Mastercard). A bank may not be able to cancel or change direct debits that are configured to be withdrawn directly from cards.
The two cents from Savings.com.au
Direct debits are now a staple of the Australian bank account and they are useful to make your life easier. Remember, they’re there, and be sure to regularly review the ins and outs of your spending account so you know where the money is going.