A few years ago, before I was in debt, I used to pay everything using direct debit. I saw it as convenient and a way of saving a pound here, or 50p there. Once I became under serious financial pressure the good old direct debit became a noose around my neck, and a cash cow for the bank.
So how did this happen? I was full time self-employed, and my family and I were financially stable. When I broke my foot, I was unable to work, but was technically still in employment. Unable to earn money for several weeks we quickly got bogged down with the bills and living off my credit card had really hammered the balance. I was unable to get any benefits, and when we enquired about the possibility of any to get us by, even if it was a crisis loan, they cancelled our working family tax credits because I was unable to work despite still being employed!
This put us in a real hole, and at the end beginning of the month I got a stack of letters through the door from the bank. I then realised that loads of direct debits had not been paid and we were over our overdraft. Each one cost me a £25 charge. This really put us under pressure and then a few days later we got letters from the mortgage company, and the car insurance company who charged us for missing the payments too! I was furious and helpless to do anything about it. A week later I got charged on my credit card because I had not made the minimum payments. To say we were stressed would be an understatement.
I went back to work as soon as I could and did whatever I could to raise money. At the end of the next month, I knew things were tight, but I thought we were OK, with just enough to cover the bills before I got paid, although I did not realise the bank was going to take their money too at the same time…
What happened next blew me away. The bank rejected all my direct debits, I mean all of them and took their own charges instead! So, I got charged even more by the bank, and my other companies, even a £25 charge for a £11 direct debit! By now the phone was ringing daily and we were being hounded by the credit card company and the bank. Even worse, some of the people calling us had loads of attitude and did not frankly give a damn. It got so bad that I unplugged our phone, not knowing what to do. The credit card company did not care that I could pay part of the repayment they just wanted the full arrears, or they would continue to call etc.
After several months of trying to get back on our feet I decided that I needed to regain some form of control. So, this is what I did, and this is not advice. I logged into my online banking and cancelled every single direct debit and every standing order. I plugged our phone in and spoke to the mortgage company and managed to sort out paying the arrears over 6 months, but I managed to get them to let me pay them via online banking each month. It was not smart but by now I had had enough of feeling terrorised, so I ignored the credit card company, and all the other calls. I had 2 accounts with this bank and after speaking to them I managed to freeze the main account and organise a repayment plan, resorting to using the other one for day-to-day usage instead.
Having decided that I was no longer going to be held to ransom, I started paying a small amount to each debt so that I was paying something. I got hassled and pressured to pay by direct debit or standing order, but I stuck to my guns, with most of my debtors letting me make the payments manually. I still got phone calls a lot, but just left the phone unplugged. I then added all the payments to my Outlook calendar and logged in and paid each one as and when I needed to. This gave me control, as by now I frankly did not care, if the mortgage was paid, and I could feed my children. My priorities were food and nappies, electric, gas and the mortgage.
It took me well over a year to recover and I am still paying back some of those debts now. I have also cleared some of them and continue to do so. Direct debits and an inflexible bank almost left my family homeless and hungry, so now I avoid them as much as I can.
So, was this the best action to take? Probably not. Is this what I would advise someone else to do? Probably not, but if I had not of done it, I have no idea where we would be now. I have since switched my main account to another bank, who is quite a bit more forgiving with their charges and I am quite relieved not to have an overdraft there. I still have overdrafts on my 2 accounts with the other bank but cannot afford to pay them off to close the accounts yet sadly. Each account costs me about £12 per month in overdraft usage fees too.
So why have I written this post? It is quite embarrassing for me, but in some small way voicing it helps me to close a chapter, and if it empowers someone else to find a way to take back control, I am happy.
So that’s how direct debits increased my debt. I now have some payments on continuous card payments and do pay my mortgage and phone bill by direct debit but otherwise keep them to a real minimum. Have you had a bad experience with direct debits?