Martin Lewis said many people who pay their energy bills by direct debit need to act now – if they are currently on credit. Speaking on his BBC podcast, the finance expert said customers have reached the crucial moment of the year to know whether they should apply for credit repayment from suppliers including EDF, British Gas, E.on, Octopus, Sainsbury’s and Outfox the Market.
He said this was the “perfect time” for people to “put the money in their pockets” because they now know whether to just leave their money sitting in the energy supplier’s accounts. In May, accounts should theoretically be at zero in terms of debt or credit – so if you have money, it’s time to take it out.
Mr Lewis explained how the direct debit cycle works and when customers’ accounts go into credit or debt mode: “With monthly direct debit, the estimated annual amount is taken and you pay the same amount every month, even if you use more in winter and less in summer. This evens out consumption.
“So whether you have debt or credit depends on what stage of the cycle you’re in. Let me tell you roughly what the cycle will look like for someone who started at this company in January.”
The financial expert said that in the colder months, more energy is naturally used and therefore costs more: “From January to March, you will be in increasing debt. The lowest point will be around the end of April, beginning of May, so today – that is the lowest point and then you are likely to owe the most to your energy supplier, which is roughly the case if you started with a month and a half of direct debit in January.”
“So if your direct debit is £200, you probably owe £330 if you started in January. From that point on you start paying back that debt. It keeps going up and by September you’re probably at zero. And then your maximum credit is in November – six months from now.” He reckoned that people would probably be a month into credit at that point.”
He said: ‘The point is that you are now at the end of that direct debit cycle, assuming you have taken a meter reading and everything is up to date. This is interesting for a number of reasons.
“That means if you have a month, a month and a half, or two months of debt now, it’s not as big a deal as you would expect. That means if you have a month, two months, or three months of debt now, then you have too much debt.
“Because in the best case scenario, you should have no credit at all at this point. In many cases, you should have debt.
“However, if you are in credit at this point in the year, it is time to get in touch with them and say, ‘Hey, we are at the bottom of the direct debit cycle, I definitely shouldn’t be in credit now and I would like you to give me this credit back please.’ Leaving them some money – say half the monthly repayments – might be a good idea, he suggested. “But if you are in credit now for two, three, four or five months, that is too much money to put in your pocket. Stop them earning interest – they have billions of pounds in cash that they are earning interest on, even though that is our money. If you are in credit, get your credit back immediately – now is the perfect time in the direct debit cycle to do it.”
