Have you ever heard of budget billing?
I may be the only one, but I had never heard of budget billing until I saw it on my electric company’s website.
Basically, budget billing smooths out your bills over a period, normally twelve months, so that you don’t have high bills in the summer (or winter) and low bills in the spring and fall.
Instead, you have one steady bill that is occasionally adjusted if your 12 month average bill amount changes.
Initially, I thought that it was just a way for my electric company to charge me an extra fee for smoothing my payments. I figured they wouldn’t be offering a service that creates more work for them for free.
On the surface, it looked like the electric company was offering a valuable service at no extra cost. It almost sounded too good to be true. So, I did some further investigation to see if I was missing anything.
Here’s what I found out.
Budget Billing Really Is Free!
My electric company really does offer budget billing completely free! Now, I can’t say that all budget billing scenarios for all utility companies are free, so make sure you check with your particular company.
However, after a bit more thought it does make sense why utility companies would offer this service for free.
According to a 2011 survey by the National Foundation for Credit Counseling 64% of Americans didn’t have enough cash on hand to cover a $1,000 emergency. Hopefully you have an emergency fund of at least $1,000, but clearly most Americans don’t even have that!
So what does this have to do with utility bills? If someone can’t come up with $1,000 in a pinch, what makes you think people can handle an unexpectedly high power bill for a hot summer month of air conditioning or a freezing cold winter month in Minnesota?
Budget billing helps these people smooth out their utility bills so they know how much money to expect to pay every month. This helps the utility company out because it means there is a higher chance of people paying their bills on time.
Utility companies can spend less time chasing people trying to collect money and quit wasting time turning customers’ utilities off. It benefits both the utility companies and the customers to offer this service.
How Does Budget Billing Work?
My utility company monitors my twelve month rolling average bill and, as long as the average doesn’t vary drastically, they keep my bill the same. Whenever they need to make a change, either up or down, they let me know a month in advance so I can prepare for the change.
If I ever need to close my account, I’ll either have to pay the small amount I may owe the company due to monthly variation or the electric company will send me a check for what they owe me.
Is Budget Billing A Good Option For You?
I’ve thought about budget billing for a while because I was determined there was a catch, but I simply can’t find it. I don’t see any huge reasons why anyone wouldn’t like budget billing. It smooths out your bills so that you know what to expect every month.
There aren’t any surprises during high use months which is great. Even though I can pay my bill every month no matter how high it is, I think I’ll give budget billing a try so I don’t have to wonder what my bill will be each month.
There were only three small negatives I could think of. If I quit making payments my utility company can kick me off of the budget billing program. In fact, they can end it for any reason they like. I’ll always make my payments, so this isn’t a big deal for me.
The second small negative is that I may no longer pay as much attention to how much electricity I use. Right now, I check our online portal a couple times a month to monitor our usage to see how big our bill is so far.
If I quit paying all attention to my bills, I do see how my bill could creep up, but I always read all of my bills in full every month.
Finally, if I reduce my usage I may end up overpaying my electric company for a few months. I’d essentially be giving them an interest free loan, but it’d be on a very small amount of money that wouldn’t make a big difference to me. In the end, it will all balance out.
Budget Billing Update
I started using budget billing back in April 2014 when I originally wrote this post. I have been using it for the last two years for my electric bill and haven’t had any problems at all.
My monthly payment has changed three or four times over the last two years, sometimes higher and sometimes lower.
I really like having a predictable bill every month and right now the electric company actually owes me some money when I close my account and move to our apartment next month.
Overall, I think budget billing is a great option if it is free. Do you use budget billing? Is it even an option for you? I want to know about your thoughts on budget billing!