Direct debit payments give you flexibility for paying your bills but, when your income is reduced, getting more control over your payments will probably be more important.
When your income drops, you should consider cancelling all your direct debits unless you can keep sufficient money in your bank account to adequately meet the payments. You’ll still have to pay these debts, but you will have taken control over who, how, and when you make payments.
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You can cancel direct debit authorisations
Banks and businesses that encourage payment by direct debit may initially tell you that you cannot stop a direct debit. You can – it’s your money and it’s your bank account. In fact, businesses that offer or require direct debit payments must have a process to assist you cancel a direct debit arrangement.
Be careful if making payments by direct debit is a basic condition of your contract and you want to cancel the direct debit authorisation. You may place yourself in breach of contract if you cancel where you have signed up for a specific minimum term, so you should seek legal advice before taking any action.
Note that the term “direct debit” only applies when funds are transferred from a bank account (in which you have adequate funds) to pay a bill or debt. Setting up ongoing payments from your credit card is different to authorising a direct debit and may require a different cancellation process.
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How to cancel a direct debit
Write to your financial institution (and send a copy of your letter to the business you pay using direct debit) and instruct them to cancel your direct debit authorisation forthwith or on a specific date. The bank cannot lawfully refuse your written request for cancellation.
To cancel a diect debit on a credit card account, you should first write to the organisation with whom you have established a direct debit, instructing them to cancel the arrangement. If the debits continue you can then show them the letter of cancellation to your financial institution and ask that the debit be reversed as it is unauthorised.
Sample MoneyHelp letter:
Instruction to cancel a direct debit authorisation from savings or cheque account (MoneyHelp Letter 10)
Sample MoneyHelp letter:Instruction to trader to cancel a direct debit authorisation from credit account (MoneyHelp Letter 10B)
Keep copies of all correspondence and statements in relation to your request for direct debit cancellation.
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Making sure your instructions are implemented
Your bank or financial institution must comply with your request to cancel a direct debit authority.
However, you should check your statements for further transactions associated with a former direct debit. You may be entitled to have any transactions or fees debited against your instructions refunded.
If your lender or financial institution fails to cancel the direct debit according to your instructions, you may take the matter to the relevant industry ombudsman service.
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Case study
Hong, a personal trainer, entered into a service contract with a local gym to rent a studio for his consultations for 12 months. The gym prepared the contract and included an exit clause that allowed either party to cancel the arrangement with a 30-day notice period. The contract also required Hong to pay his rent by direct debit by the last day of every month.
Read the entire case study