A recent survey conducted by budgeting account provider thinkmoney has revealed the worrying trend of people relying on their overdraft, with nearly one in ten being overdrawn all the time.
Add to that the 11% of respondents who dip into their overdraft on a monthly basis and the one in four who do so "from time to time" and it becomes an increasingly pressing concern, particularly after factoring in the cost of recurring overdraft fees.
Overdraft charges can quickly add up, particularly for consumers that go into an unauthorised overdraft, and with 8% of respondents typically being charged £30 per month on interest and penalties it's money that could be put to far better use.
With that in mind, we've put together a few ideas on how to cut the cost of your overdraft and escape the cycle to get you back in the black.
For those well and truly stuck in the red, opting for a personal loan to clear the overdraft and get back on track can be a great solution. Unless you're lucky enough to enjoy a 0% interest deal with your bank the typical overdraft can cost anything from a modest 9.9% to a painful 18.9%, and although personal loan rates can be similar there's one key difference – there's a clear exit strategy in place with fixed monthly repayments meaning you'll be free from debt at a pre-set date, rather than continually going back into your overdraft.
Using a credit card can often be a much better alternative to relying on your overdraft, particularly if you manage it efficiently and pay off the full amount every month. Or, why not switch to a balance transfer credit card? Finding one that offers an introductory 0% interest rate can offer the same benefits as above, giving you the chance to pay off your debt without accumulating additional interest penalties.
For those who only dip into their overdraft occasionally and at relatively low levels, finding a bank account that has a good overdraft policy can be the best bet. Lots of accounts will offer so-called overdraft "buffers", typically allowing the account holder to go overdrawn by around £50 without incurring any interest or additional charges, whilst others might offer a 0% interest rate on pre-arranged or authorised overdrafts, so it's worth shopping around.
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Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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