How do you use your current account? Do you regularly have to dip into your overdraft?
Overdrafts are a form of borrowing from your bank or building society, and they can be expensive, so it's important to compare the EAR interest rate as well as any charges when you choose a current account. They are open-ended so don’t have a specific end date when the debt has to be repaid.
Some banks and building societies will offer a small interest-free buffer zone if you become overdrawn by a few pounds.
If you think you are going to become overdrawn, contact your bank to find out if you'll go beyond your interest-free buffer and see if you can get a temporary overdraft to avoid any charges.
There are two types of overdraft: arranged and unarranged.
If you tend to use an overdraft each month, it's better to have a pre-agreed arranged overdraft. Even pre-agreed overdrafts can be expensive, so you should only rely on your overdraft for cashflow between paydays, not for longer-term borrowing.
If you find your overdraft balance creeping up or staying the same, month after month, take action and read this guide to repaying your overdraft.
However, if you use your overdraft sparingly and pay it off within a couple of months, make sure your current account is competitive by checking out our selection of the best overdraft current accounts.
If you dip into your overdraft because of occasional retail spending, consider using a credit card instead.
You get an interest-free grace period of up to two months on a credit card (which you don't get from an overdraft) plus the added benefit of purchase protection on purchases over £100. Just be sure to clear the balance in full at the end of the month or this option could become more expensive
Payday loans should be considered a real last resort as they can charge significantly higher annual rates of interest!
If you really need to borrow a small amount of money quickly, make sure you check with your bank to increase your overdraft or contact your credit card provider to up your credit limit.
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.