For somebody who occasionally needs to pick up an unexpected expense before payday, an arranged overdraft can save the day. It gives you access to an authorised pot of money that the bank lends you at an agreed rate, which means you have the peace of mind to make any purchases you need without worrying. It can also come in handy if you have bills due to go out before you get paid, as you can borrow the money for a short period and avoid getting late fees or having your supplies cut off.
However, using your overdraft too much is a dangerous trap: the money is so easy to access that you can quickly find yourself borrowing more than you can easily afford to pay back. If this is the situation that you find yourself in, the tips below could help you to forge a healthier relationship with your overdraft.
Change the day your bills go out
As we mentioned above, overdrafts can be useful for paying bills that go out late in the month, just before you get paid. Even better, though, is to move the date of your direct debit to after payday. We like to set up bills to be paid on the 1st or 2nd of the month when there’s likely to be plenty of cash in the kitty. If you can’t do this through your online account, then a simple call to the provider should sort it.
Switch bank account
You may be able to take advantage of a bank with a more generous overdraft policy. If you’re able to open an account with an overdraft facility that doesn’t charge you, then you can transfer your debt across and pay it off without seeing the amount you owe grow any further. Banks will also often offer you money for switching to their account, and you can use that money to pay off part of your debt. For example, at the time of writing First Direct are offering £50 for switching as well as an interest free overdraft up to £250.
Speak to your bank
If you like your current bank account and have had good service from them in the past, then you might not want to switch account. In that case, you could also give your existing bank a ring, explain your circumstances and see if there’s anything they can do to help you out. They may agree to waive some of the fees or reduce the interest, especially if you can agree to a repayment plan.
Use your savings
There’s no point having a big pile of savings in one account and mounting debt in another. Although we realise that not everyone has the luxury of an emergency fund, those who do should seriously consider using some of the money to pay off their overdraft. The amount that you’re earning in interest is unlikely to be more than you’re paying in fees, so saving the money for a rainy day could actually be costing you.
Ask the bank to reduce your overdraft facility
Once you’ve paid off your overdraft, you could consider telling the bank to reduce the amount that they’ll lend to you. While this obviously isn’t a great strategy for people who need their overdraft to make essential purchases and stay afloat, anybody who finds that they’re using an overdraft facility for non-essential spending can remove the temptation by asking the bank to cut them off.