Are you always in overdraft on your bank account? An overdraft can be useful, but it can become an expensive problem if you start relying on it and don't pay it back. So here's the moneyfacts.co.uk 7-step guide to getting, and staying, overdraft free…
We all get a bank statement, whether it's a good old fashioned paper copy, or an online version. But how often do you actually read it?
Decide on a figure that you can afford to leave in your account at the end of the month.
Make sure the figure's high enough to be worthwhile. You should aim for a payment that will allow you to clear the overdraft in the quickest possible time. It may mean a sacrifice, but in the long run it will be worth it.
You may have been trying to repay your overdraft for some time, with little success.
A personal loan has a fixed payment and a fixed end date. However, you'll need to commit to a higher monthly payment. If you don't make your payments on time it will affect your credit history.
A personal loan has a fixed payment and a fixed end date.
However, you'll need to commit to a higher monthly payment. If you don't make your payments on time it will affect your credit history.
Create a spreadsheet for yourself, or write down what you want your current account balance to be, the day before payday every month.
For instance, if your current account balance is -£1,000 and you can afford to commit £50 per month, you will want your closing balance to be -£950 in month one, -£900 in month two and so on.
Check your balance regularly – every time you withdraw money at an ATM, or every couple of days using online banking. Being aware of your balance will make you more conscious of what you are spending.
As soon as you get to a milestone marker, like -£750, see if your bank will reduce your overdraft limit to £750. That way you can't undo the good work you've done!
It may take a while to repay your overdraft, there's no getting around that.
Motivate yourself. There is nothing as motivating as the 'before shot'. Your 'before shot' will be that starting bank statement – keep this in a place where you can see it every day (like the fridge for instance).
Once the overdraft is repaid, lose it completely. Ask your bank to reduce your overdraft by a certain amount every month until it is totally repaid. If you're worried about straying into overdraft again, why not switch to a basic bank account or a prepaid card which don't allow you to have an overdraft at all?
Stick to your guns
Don't fall for the banking sales pitch. If it's better for you not to have the option of an overdraft, then say so. Tell the bank that this is not the type of current account you want.
By now you'll be used to paying an amount off your overdraft each month – don't let this discipline go to waste!
Why not set up a standing order to a savings account and start building up a bit of money in reserve?
Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.