7 Steps to getting (and staying) overdraft free

7 Steps to getting (and staying) overdraft free

Category: Banking

Updated: 16/01/2014
First Published: 26/07/2013

Are you always in your bank account overdraft? 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 7-step guide to getting, and staying, overdraft free…

1. Look closely at your budget

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?

  • Look at all of your direct debits and standing orders, do you know what they are all for? Perhaps you have a gym membership that you don't use, or a subscription to a magazine you never read. Perhaps it's time to cancel that subscription?
  • Check the cash withdrawals or card payments you make over the month. What are they all for? Make a note of each withdrawal and payment you make along with a running total of your bank balance. Are there places where you fritter money away needlessly, such as buying lunch instead of taking a packed lunch to work? Buying lunch five days a week at £5 a day costs around £100 a month, you could cut that spending by half if you make your own sandwiches, buy multi-packs of crisps and snack bars, especially when they are on special offer at the supermarket.
  • Are you paying over the odds for your gas and electricity bills, home and contents insurance, car insurance, etc.? Make a note of the contract end dates for any utilities and insurance policies and set an email calendar reminder a month before to remind you your bill is up for renewal. Then make a conscious effort to compare and review these expenses by comparing quotes on price comparison sites such as
Cut anything that you can go without and get better prices and deals where you can.

Once you've cut any wasteful spending; look at your non-essential spending.
  • Could one of your nights out in a month become a night in with a movie and popcorn?
  • Could you car-share? There are a number of websites that find others going your way so you can car-share together, such as
  • How about cycling to work? Does the company you work for have a Cycle to Work Scheme? Cycle to Work is a scheme by which you can get tax free bikes for work through the Government's Green Transport Initiative. The average saving is about 32% of the cost of your new bike. You can get just about any bike you like from a local bike shop, and it's good for your health and the environment too. See how much you could save by biking to work at
Looking after the pennies will help you look after the pounds when it comes to bringing that overdraft down! The other way is to earn more to repay the overdraft debt. Perhaps consider getting a part-time job to give you a little extra income. Aim to repay as much per month as you can afford.

Budget: It may be useful to itemise what you spend each month to see if you can make any savings. A great way to do this is on a spreadsheet, or by using a budgeting tool such as this one from the Money Advice Service.

2. Work out how much you can afford to pay

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.

Should I take out a personal loan to pay back my overdraft?

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.

If you go for the personal loan option, make sure you remove the overdraft facility on your current account so you're not tempted to dip into it again

3. Monitor your progress

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.

4. Reduce your overdraft limit as you go

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!

5. Stay motivated!

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).

6. Don't repeat the mistake once you've repaid your overdraft

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.

7. Keep saving money and turn a negative into a positive

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?

What a truly positive way to turn your finances around!

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.

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