Save, make, understand money


Debt and switching: your rights for energy, current accounts and credit cards

Paloma Kubiak
Written By:
Paloma Kubiak

If you’re in debt to your energy firm or bank, you may think your options are limited and you aren’t eligible to get a better deal elsewhere. But that’s not always the case.

Energy and debt

The number of households in debt to their energy supplier is on the rise. Research from energy comparison site uSwitch reveals that in 2018 alone, 2.9 million bill payers owe a collective £393m to energy companies.

This is up from the £318m owed by 2.6 million billpayers in 2017 and £290m recorded in 2016 when 2.3 million were in debt to their supplier.

Given this year’s spate of energy price hikes, it’s no wonder many more households are facing the prospect of energy debt. But big savings can be made by switching. uSwitch  suggests those on standard variable tariffs stand to save up to £482 switching to a cheaper deal.

But if you’re in debt, can you switch energy supplier?

If you’re on a prepayment meter, you can switch if you owe less than £500 per fuel. However, you’re advised to organise a manageable repayment plan with the new supplier.

If you’re a credit meter customer (pay monthly or quarterly for instance), you need to pay off any debt before you switch unless it’s less than 28 days old. If this is the case, the debt will be added to your final bill.

uSwitch suggests that if the level of debt is too high to pay off in one go, you should speak to your supplier to organise a manageable repayment plan. You can also ask to be put on the cheapest deal the supplier offers, which will help bring energy costs down.

Rik Smith, energy expert at uSwitch, says: “It’s always a good idea to pay as little as possible for your gas and electricity – especially at this time of year – and switching is one way to pay less.

“But if you do owe money to your energy company or have missed a few payments, the best course of action is to get in touch with your supplier. It can offer repayment plans and advice on accessing government schemes that can give you money off your energy bills. It’s definitely worth seeing how they can help you.”

Current account overdraft

A number of banks and building societies are touting enticing cash back offers in order to prize customers away from their competitors. In fact, you may be able to gain up to £200 just by switching your current account to a new provider.

But if you regularly dip into an agreed or unarranged overdraft, you may wonder whether switching current account will work for you.

According to Bacs and the Current Account Switching Service, being in an overdraft doesn’t automatically exclude you from switching. But it could take a bit more work.

This is because you need to agree any overdraft facilities you require with your new bank or building society. Otherwise the new bank may be able to provide a facility where you can pay off the existing overdraft. Bacs adds: “If you do not come to an agreement with your new bank you must make separate arrangements to repay your existing overdraft before you switch.”

If you do regularly go into an overdraft and are enticed to switch current account provider, make sure you check out the overdraft fees and charges at the new bank. It may be good to gain a £200 cash bonus, but it won’t be much use if you rack up more overdraft fees with the new provider.

Credit card debt

Racking up credit card debt can be easy but clearing it can be a long process. But a balance transfer credit card could be a good option to help you with your credit card debt.

These products allow you to shift your existing balance from one credit card provider to another. The new provider takes on the debt and you owe it instead but at a cheaper rate.

The main draws for these cards is that you can consolidate several credit card balances into one manageable monthly payment and many also come with a 0% interest period.

However, consumers need to look at the overall cost of such a move.

Deborah Vickers, channel director at credit card comparison site, Moneyguru, says: “You need to consider the amount of existing balance you want to transfer, the transfer fee and the 0% period.

“The 0% period has been coming down from around 40 months to 30 months but this isn’t the only factor. You should look to manageably pay off the balance over the term and always make the minimum payment.

“There is a choice of cards but you need to be eligible for them so consumers should look at comparison tables and eligibility checkers to see if they can get the card as all applications for credit cards will impact your credit score.”