While an overdraft can be useful, it can also become an expensive problem if you start relying on it and don't pay it back. If you’re always in your bank account overdraft, here's our seven-step guide to getting, and staying, overdraft-free...
We all receive a bank statement, whether it be through the post or online. But how often do you actually check your bank statement and is there anything where you could save?
Looking after the pennies will help you look after the pounds when it comes to bringing that overdraft down! One alternative may be to earn more to repay your overdraft debt. Perhaps consider getting a part-time job to give you a little extra income and aim to repay as much as you can each month.
Decide on a figure that you can afford to leave in your account at the end of the month, and make sure that it'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 or two, but it will be worth it in the long run.
If you’ve been trying to repay your overdraft for some time, with little success, maybe a personal loan could help you achieve your goal?
✔ A personal loan has a fixed payment and a fixed end date, giving you a target date when you’ll be debt free.
✖ However, you'll need to commit to a higher monthly payment. And if you don't make your payments on time, it will affect your credit history.
If you go for the personal loan option, it’s vital to keep up your repayments. Also make sure you remove the overdraft facility on your current account, so you're not tempted to dip into it again while you’re paying off the loan. But make sure you stay in credit or you may incur interest charges for going into an unarranged overdraft.
Create a spreadsheet to keep track of things, or simply 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 to paying it off, you will want your closing balance to be -£950 at the end of month one, -£900 in month two, and so on.
Check your balance regularly, ideally 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, which is why you'll need to motivate yourself. There's nothing as motivating as the ultimate 'before shot': your starting bank statement. So, keep it in a place where you can see it every day – like the fridge, for instance.
Once the overdraft is repaid, why not lose it completely? Ask your bank to reduce your overdraft by a certain amount every month until it is totally repaid, so you can't be tempted to dip back in. If you're worried about straying into your overdraft again, why not switch to a basic bank account or a prepaid card that doesn't allow you to have an overdraft at all?
Importantly, 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.
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.