How to get out and stay out of your overdraft

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?

• Look at all of your direct debits and standing orders. Do you know what they're 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 those agreements?
• Check the cash withdrawals or card payments you make during the month. What are they all for? Itemise your spending (perhaps by using a spreadsheet or online budgeting tool): make a note of each withdrawal and payment you make along with a running total of your bank balance, and see where savings can be made. Are there instances where you needlessly spend money, perhaps by buying lunch when you could actually take a packed lunch to work? Buying lunch five days a week at £5 a day will cost you around £100 a month, but you could cut that spending in half if you make your own sandwiches and buy multi-packs of crisps and snack bars.
• Are you paying over the odds for your gas and electricity, home and contents insurance, car insurance, and so on? Make a note of the contract end dates for any utilities and insurance policies, and put a reminder in your diary a month before they are up for renewal. Then make a conscious effort to compare and review these expenses.
• When it comes to non-essential spending, could one of your nights out 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. Or how about cycling to work? Does the company you work for have a Cycle to Work Scheme, where you can get tax-free bikes? The average saving is about a third of the cost of your new bike, and it's good for your health and the environment, too.

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.

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.

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.

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!