Fixed-Payment Utility Plans Can Have Nasty Endings

How big of a balloon are we talking about? It depends -- but it could be pretty big.

Take heating oil, for example. Say you typically use 1,300 gallons of oil a year. If it's a colder winter than normal, you may use an extra 300 gallons to heat your home. The weather, along with other market forces, could drive the price per gallon up to $5.75 -- 75 cents above your budget plan's estimate of $5. That means at the end of the season you could owe a balloon payment of up to $2,700. You paid a total of $6,500 over the course of the year, but you used $9,200 worth of oil (1,600 x $5.75). 

While oil has been getting all the headlines because of the massive spike in prices, consumers relying on electricity and propane to heat their homes are just as exposed to increases in usage due to a colder than expected winters.

You don't have any control over the weather or prices, but you can at least make sure your budget plan is based on the best possible information. Sherry recommends asking your utility provider for your usage statistics for the last two years so you can make an accurate estimate of how much energy you'll need.

If you're wary of the balloon payments that may come along with a budget payment plan, check out pre-pay and fixed-price plans. In both cases you are able to lock in your heating oil price for the entire winter, thereby protecting yourself from future price increases.