It’s not uncommon to have an overdraft. Most bank accounts offer it as an option, and a lot of people will dip into it from time to time. But if the amount you have in your overdraft grows and you find yourself struggling to pay it off, it can feel a bit overwhelming. But there are steps you can take to get on top of it and make repaying your overdraft more manageable!
1. Use your savings
No matter how high or low interest rates are overall, it’s pretty much always the case that borrowing rates will be higher than savings rates - so borrowing money (an overdraft) costs more than the money you make back on your savings! So you’re probably losing a lot of money on interest if you have an overdrawn bank account. It therefore usually makes sense to use any money you have saved up, to pay off expensive debts, including your overdraft. But remember, always check your personal interest rates first and do keep some savings back for your important emergency fund!
2. Switch to a cheaper overdraft
If you were looking to buy a new phone and two different shops offered the exact same phone but at different prices, you’d choose the cheaper price, right? It’s a no brainer!
Well the same applies for overdrafts! There are sometimes competitive rates on overdrafts, some banks even offer interest free overdrafts, especially for students. So next time you have a spare half an hour, instead of scrolling TikTok, why not use that time to shop around for overdrafts? Have a look around, and if there’s a bank offering a lower rate than your current overdraft, switch! It’s that simple. If your interest rate is lower, then a larger proportion of your repayments will be going towards paying off the debt and not on the interest.
3. Use a money transfer credit card (if it’s interest free!)
Some banks offer credit cards with 0% interest on money transfers. This means that if you use a money transfer credit card with a 0% interest rate, you can borrow the money you need to pay off your overdraft, without the worry of being charged more interest!
Of course, the debt hasn't vanished (that would be great, wouldn't it?!), it's been added to your credit card, but you won't be paying any interest on that debt. Amazing! Similarly to the last point, this means a larger proportion of your repayments will be going towards paying off the debt and not on the interest.
It is important to be aware though that applying for a new credit card will affect your credit score, so just something to keep in mind if you’re already struggling with your credit score or are going to be applying for a mortgage soon.
4. Create a budget
You may or may not already have a budget for your monthly incomings and outgoings. You might just have a mental budget where you know what big expenses go out each month, or you may be super-duper organised and have colour-coded spreadsheets with IF functions and all the bells and whistles. Either way, it’s important to have a budget of some sort.
Once you’ve got a budget sorted, you can incorporate your overdraft payments. Allocate as much as you can afford to pay off your overdraft, while still having enough for bills, spending and other financial goals.
It could also be worth reviewing your budget to see where savings could be made elsewhere. Have a look through your bank statements and work out if there are any unnecessary subscriptions or expenses that can be cut! You can then use this cash as an extra repayment on your overdraft! Small savings like this can make a huge difference over time and have the power to transform your financial position!