Prepaid Electricity Pros & Cons

What is prepaid electricity?

A prepaid electricity plan is similar to having a bank account dedicated to your electricity bill. As the name implies, you pay for your electricity beforehand and can reload money to your account whenever you like. These plans often come without the commitment of a contract or the expense of a deposit, and many offer a variable rate.

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What is a postpaid or traditional contract plan?

With a postpaid or traditional contract plan, you are billed for your energy usage after it occurs, typically on a monthly basis. These plans can involve contracts and deposits, and often feature a fixed energy rate.

Pros and cons of prepaid electricity

Prepaid electricity may not be suitable for everyone. To help determine if it's the right choice for you, we have compiled a list of pros and cons.

Pros:

1. Easier budgeting. You have full control over how much you pay and when. Payments can be made online or by phone at any time, and as long as you maintain a positive balance, your electricity will continue to flow.
2. Easy alerts. You'll receive text or email alerts when your account balance is running low, along with estimates of how many days your remaining balance will last.
3. Detailed usage information. You will have online access to detailed information about your electricity consumption, which can help you develop strategies to further reduce your electricity costs.
4. The advantage of variable rates. Though high-demand seasons can increase variable rates, you will benefit from lower rates during cooler seasons. During these months, your payments will stretch further, providing an opportunity to save up for potential rate increases.
5. No deposits, credit checks, or commitments. Prepaid electricity plans are quick and easy to set up, with no credit checks, deposits, or contracts required. Simply open an account and add funds to start using electricity.

Cons:

1. Higher rates. One downside of prepaid plans is that the rate per kilowatt-hour (kWh) may be slightly higher than the rates on comparable traditional postpaid plans.
2. The downside of variable rates. Prepaid plans often come with variable rates, which can change with the seasons, increasing during high-demand periods. This can make it difficult to budget during hot Texas summers when everyone is using air conditioning.

Who should get a prepaid electricity plan?

Situations that make a prepaid electricity plan a great fit for you include:

• Bad credit or no credit. Postpaid electricity plans often require deposits or deny service based on credit scores. Prepaid plans bypass credit checks, making them more accessible.
• If you have no credit, providers may demand a deposit for postpaid plans. Prepaid plans are an economical way to establish a record of timely payments.
• On a tight budget. Prepaid plans help avoid deposits, billing fees, and unexpected large bills, making it easier to manage your finances.
• Energy conservationist. Pay-as-you-go plans provide real-time data and alerts, making it easier to track and reduce electricity consumption.
• Frequent mover. Without long-term commitments, prepaid plans offer flexibility for people who relocate often.

Who should get a contract electricity plan?

A postpaid or contract electricity plan might be better if you:

• Want to lock in a competitive fixed rate. Locking in a contract for multiple years can offer lower rates.
• Crave stability and predictability. Paying for usage after the fact on a set billing date each month makes it easier to budget.
• Want another way to build your credit. Paying utility bills in full and on time can help build credit with certain alternative credit score groups.
• Have a critical or chronic care condition. If losing electricity could endanger health, a contract electricity service is necessary.
• Have a good credit history and can afford a deposit. Starting a new utility service often requires a deposit, which can be 1-2 times the amount of a monthly bill.