Being in debt to your energy supplier isn’t necessarily a problem, but it’s a good idea to know when it is, and what you can do about it.
With the help of debt charity StepChange, we’ve put together a one-stop guide to energy supplier debt. By the end of this guide, you’ll know exactly what to do if you owe your supplier money, whether you’ve got a standard or a prepayment meter.
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If you pay for your gas and/or electricity by direct debit, it’s pretty common that during any given month, you might be in debt to your supplier by a small amount. This is because the amount you pay each month is simply your estimated annual usage divided by 12. During winter months, you’ll probably use more than what you pay for, and this will balance out during the summer.
If your debt starts to build up, you’ll often be asked to increase your monthly payments. You’re free to do this or not, but bear in mind that come the end of your contract, you’ll need to settle up the remaining balance. To avoid a nasty shock when do you close your account, it can be worth paying that bit extra each month.
Debt becomes arrears if you fail to make a payment due, and this can become a problem if it builds up, or lasts for longer than a month.
Energy supplier debt can become a problem when it comes to time to switch tariffs. However unless your debt is particularly high, or you’ve been in debt for a long time, it shouldn’t stop you from being able to switch.
In fact, switching to a new energy supplier and a cheaper tariff is advisable if you find yourself in debt. You’ll need to pay back what you owe, but will find that much easier if you’re paying less each month to a new supplier.
Regulations protecting indebted customers vary depending on what kind of meter your use:
If you use a standard credit meter, and you’ve been in arrears for fewer than 28 days, then you’re free to switch. The money you owe will simply be added to your final bill but the switch should proceed without issue.
If you have been in arrears for more than 28 days, you’ll need to settle up before you can switch to a new supplier.
Importantly, this is the case regardless of the value of your arrears.
If you use a prepayment (or pay as you go) meter, Ofgem’s Debt Assignment Protocol (DAP) protects your ability to switch depending on the size of your debt.
If you owe under £500 per fuel, you’re within your rights to switch a new supplier and request that they take on the debt you owe to your old supplier via the DAP. You’ll need to remain on a prepayment plan until the debt is cleared.
It is important to note, however, that your switch isn’t guaranteed by the DAP. A supplier may still block your switch, but if so they’re required to make it clear to you why they did, and outline any steps you can take to resolve their objection.
Once you have managed to switch and have cleared your debt, it’s advisable to switch from a prepayment to a credit meter, as the price you pay for your energy will be much lower.
If your supplier has made a mistake that lead you to owe them money – if they’ve updated your meter readings incorrectly, for example – then they cannot use this as a reason to block your switch.
If your switch has been blocked by your supplier because of debt you owe them money, or you’ve been informed of particularly large arrears, it’s important that you work out a repayment plan as soon as possible.
If you pay for your gas and/or electricity by direct debit, one way to steadily clear what you owe is to increase your monthly payments to eventually make up the shortfall. If you’ve fallen into arrears, you can set up a plan to pay of what you owe on top of your resumed monthly bill.
Speak with your supplier directly and they will be able to help you set up a repayment plan that is tailored to your financial circumstances.
The latter also applies if you’re using a prepayment meter. Whether you’ve managed to switch, but have a sizeable debt to clear, or your switch has been blocked, it’s worth contacting your supplier to set up an affordable repayment plan.
If you receive benefits and are struggling with arrears, there is a chance that your supplier requests what’s known as a third-party deduction (TPD). Under a TPD, up to 5% of your benefits would be sent straight to your supplier.
“TPDs should be considered as a last resort and only used if they are affordable and helpful to those concerned. This is because deductions from benefits can in some instances push people further into financial difficulty.
We would always recommend speaking to your supplier in the first instance to discuss options available for repayment.”
Additionally, StepChange’s free benefits calculator is a helpful tool that you can use to make sure that you’re actually getting all of the benefits you’re entitled to. Each year, millions in the UK miss out on billions of pounds worth of tax credits and benefits.
In some extreme circumstances, if you’ve failed to repay (or come to an arrangement to repay) a long-outstanding debt, your supplier may apply for a warrant to disconnect your supply. Your supplier is obliged to notify you that they’ve chosen this course of action, so you’ll have an opportunity to contact them to try and arrange a repayment plan.
Otherwise, a court hearing will taking place at which, if you attend, you’ll have another opportunity to make an arrangement with your supplier. If this doesn’t happen, the court grants to warrant for disconnection and you’ll be given seven days’ notice before your supply is turned off.
This is extremely rare, and it is more common that you would be switched onto a prepayment meter if you’re currently on a credit meter.
If you are disabled, have long term health problems, live with young children, or are in severe financial difficulty, then most suppliers will not disconnect your energy at any point. Between 1st October and 31st March, no supplier is permitted to disconnect you if you are a pensioner living either on your own or with a child under the age of five.
For more guidance on disconnections, visit Citizens Advice.