Everything you need to know about bill smoothing

What is bill shock?

Bill shock is the negative reaction a customer feels when they receive a bill that contains unexpected charges or an unexpectedly high amount to be paid. It’s a phrase commonly used about phone bills in the telecommunications industry, as well as electricity bills and water bills.

One way consumers have found to help avoid bill shock is by using bill smoothing.

What is bill smoothing?

Bill smoothing is a way of paying smaller amounts more frequently to the provider who is billing you, rather than paying one large bill a few times a year. This can be done in two ways: a formal payment plan with the service provider, or informally making more frequent payments on your own.

With the formal bill smoothing structure, the provider creates a payment plan where you pay a portion of an estimated bill at regular intervals. It works by calculating the total estimated cost of your energy bills for the next 12 months and then splitting the amount into equal weekly, fortnightly, or monthly payments.

In order to calculate this, your provider will look at your energy usage over 12 months and compare you to customers in your area with similar usage patterns. Rather than paying quarterly bills throughout the year of varying amounts, you would pay the same amount each week, fortnight or month.

Then if your actual usage is higher than what you’ve already paid, you would receive a bill to cover the difference at the end of that quarter or year. Likewise, if your actual usage is less than your bill smoothing payments, you would be “ahead” on your next bill.

How to do your own bill smoothing

If you find paying small amounts regularly an easier form of budgeting, you can easily do your own “bill smoothing” by setting up regular BPay deposits towards your usual large bills. That way, when you receive your actual bill in the mail, there should not be too much left to pay.

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Case study on bill paymentsJulie’s Smart Plan

Julie’s car registration is $800 per year, billed annually. Rather than pay one lump sum amount, Julie has set up a BPay direct debit of $30 per fortnight, so that by the time she receives her registration notice in the mail there is only around $20 left owing. She has also set up payments of $40 per fortnight and $20 per fortnight to cover her electricity bill and phone bill respectively. Not sure where to start with getting your expenses under control? Setting a solid budget is a great help so that you know what expenses you’re likely to have falling due –and when!

Check out some tips to spring clean your debts and some tips on getting out of credit card debt, not to mention some easy ways to save money.

In credit card debt? Consider the pros and cons of using a balance transfer offer to pay less interest while repaying your credit card debt.

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