How to clear your overdraft more quickly
Key takeaways
Consider switching current accounts to find a lower interest overdraft
Watch out for transfer fees when transferring funds from a credit card to pay off the overdraft
Reach out to your bank as they might have a more manageable borrowing solution
What is an overdraft?
An overdraft is what happens when your current account dips below zero. It’s often called going into the red and means you’re spending more than you have available and you’re borrowing from your bank.
An overdraft can be a convenient buffer for those unexpected expenses, but it's not without its costs. An authorised overdraft comes with a pre-agreed limit and a fixed interest rate, which means you know up front how much you can spend and what the charges will be.
It can sometimes be possible to get a 0% overdraft, which means you won’t face interest charges for going overdrawn.
However, there are no guarantees. It is down to the discretion of the account provider whether they want to offer you a 0% overdraft and how long it might last.
How much will my overdraft cost me?
The cost of your overdraft depends on the terms and conditions of your current account.
Since April 2020, banks have been required to simplify overdraft fees into a single annual interest rate, thanks to the Financial Conduct Authority (FCA) taking action against exorbitant overdraft charges.
This has made it much easier to understand and compare the costs across different accounts, but it doesn’t mean overdrafts are cheap. Typical interest rates range from 15% to 40%.
Interest accumulates daily, so the longer you remain overdrawn, the more you'll end up paying.
There is usually no fixed monthly repayment schedule, so you can clear as much or as little of the overdraft as you like, but your bank can also review or withdraw the facility.
If you find your overdraft too costly, it might be time to consider switching to a provider with more favourable terms, exploring alternative borrowing options or taking additional steps to clear your debt.
How can I pay off my overdraft fast?
Paying off your overdraft can be approached in several strategic ways:
Switch to a cheaper overdraft provider
Try shopping around among current account providers to find a cheaper overdraft. You might even find one offering 0% for an initial period. As long as you’ve used your overdraft responsibly and have a good credit rating, it should be possible to switch – even if you’re overdrawn.
Consider a money transfer card
A 0% money transfer card allows you to move funds from a credit card into your current account – then use the cash to pay off your overdraft. Money transfer cards usually charge a one-off fee, so weigh this against the savings on interest payments. Also, aim to clear the balance before the 0% period ends and interest is charged.
Take out a low-rate personal loan
If you’ve built up a sizeable overdraft and other debts totalling £1,000 or more, a low-rate debt consolidation loan could help. Look for a loan with a lower representative APR than your overdraft’s annual interest rate.
Use the funds to pay off your overdraft and then pay back the loan in instalments over 12 months or more.
Use your savings to pay off your overdraft
It might seem counterintuitive to dip into your savings, but if the interest rate on your overdraft is higher than the interest you're earning on your savings, it could make financial sense.
Get serious about budgeting
A thorough review of your monthly spending can reveal areas where you can cut back and save money, which can then be used to reduce your overdraft. Our guide on ‘How to get into the savings habit’ and potentially using the 50-30-20 framework could help.
*Think the following table could be a helpful comparison, but the actual rates might want to be grounded and linked to latest MSM figures. Ie. best available personal loan rates. 9.9% here is just illustrative*
What is the cheapest way to clear a £1,000 overdraft?
The table below compares the different costs of clearing £1,000 of debt over 12 months. While the values will vary depending on individual circumstances and the deals available, it shows that retaining an authorised overdraft can be an expensive way of managing your debt over a year.
Assumed cost over 12 months | Approx total cost | Key trade-off | |
|---|---|---|---|
Stay in arranged overdraft | Interest charged daily at 39.9% | ~£220–£250 | Flexible but expensive |
0% money transfer card | 4% transfer fee | ~£40 | Cheapest borrowing if repaid in time |
Personal loan | 9.9% APR | ~£55–£65 | Predictable repayments |
Use savings | Lost interest at 4.5% | ~£45 | No debt, but reduces cash buffer |
Money transfer cards require credit approval. Personal loan rates are representative, not guaranteed. Savings shouldn’t be fully depleted if it leaves no emergency buffer. Overdraft costs depend on how quickly balance reduces.
How long do I have to pay off my overdraft?
Overdrafts don't come with a set repayment schedule like loans do, which means there's technically no deadline for repayment.
However, due to the daily interest charges, it's in your financial interest to clear the balance as soon as possible.
Banks can review your overdraft limit and interest rate, usually with notice, so it should not be treated as a guaranteed long-term borrowing solution.
This means that while switching to a current account offering a low interest or 0% overdraft can be a good idea, it’s still advisable to clear your debt quickly because the rate is not guaranteed.
Will I have to pay interest on my overdraft balance?
Unless you're lucky enough to have a 0% overdraft agreement, you will accrue interest on the amount you're overdrawn.
Some banks charge as much as 40% in annual interest, which can be steeper than the rates for credit cards and personal loans. And since interest is charged daily, it can quickly add up.
Does going into my overdraft affect my credit score?
Using your overdraft occasionally is unlikely to have a significant impact on your credit score.
On one hand, responsible overdraft use may support a healthy credit profile, but consistently exceeding your overdraft limit can be a red flag to creditors, indicating financial difficulties and potentially harming your credit score.
What happens if I use an unauthorised overdraft?
If you go into the red without an agreement with your current account provider you have used an unauthorised or unarranged overdraft.
Unauthorised overdrafts are best avoided because payments may be declined, your bank may contact you to discuss your account, and it coul
If you think you might need to use an overdraft on your current account, always check the terms and conditions to make sure it is authorised first – and if not, contact your account provider to see if it can be arranged.d negatively affect your credit profile or relationship with your provider.
What happens if I can’t pay off my overdraft?
If you find yourself struggling to pay off your overdraft, contact your bank as soon as possible. They may be able to assist you in finding a more manageable borrowing solution.
If you are struggling to pay off your overdraft and have debt worries, free advice is available from charities such as Citizens Advice / 03444 111444, National Debtline / 0808 8084000 and
StepChange / 0800 1381111.
Is it sensible to take out a credit card or a loan to pay off my overdraft?
Taking out a credit card or a loan can be a sensible move if it means you'll be paying less in the long run.
A 0% or low interest money transfer card can be a strategic way to clear your overdraft, but it's imperative to pay off the balance before the 0% period expires.
When considering a personal loan, ensure that the APR is lower than your overdraft's and factor in the loan term and total cost before making a decision.
While a loan can reduce the interest rate and make payments more manageable, you are locked into the agreement.
Overdrafts can be paid off at any time, so if you’re likely to receive a lump sum in the near future, a loan might not be the best option to clear your debt.
Can I still switch current accounts if I am in my overdraft?
You may be able to switch while overdrawn, but the new provider will assess any overdraft request separately.
The Current Account Switch Service guarantee ensures a smooth transition. A credit check will be conducted, and while being overdrawn won't necessarily prevent approval, an unauthorised overdraft could complicate matters.
Personal Finance & Insurance Expert
What's the best way of managing an overdraft?
“An overdraft can be useful for short-term cashflow issues, but shouldn’t be part of your long term borrowing plan. Interest rates can be high and even if you get a 0% rate it’s down to the discretion of the account provider whether it lasts.
"The good news is there are several ways of clearing your overdraft. But whatever you do, don’t ignore overdraft debt, or it will only escalate.”
Other useful guides
For more information on managing your finances, consider reading our other guides:
Compare current accounts with MoneySuperMarket
When you're ready to take control of your overdraft situation, MoneySuperMarket is here to help.
Searching for a new current account is quick and easy with our platform. You can filter accounts by features such as overdraft limits, switching incentives, or customer service ratings.
Once you've found the right fit, signing up directly with the provider is just a few clicks away.
Frequently asked questions
Can my bank remove my overdraft?
Yes. Banks can review and reduce or withdraw overdraft facilities, usually after giving notice. This is why overdrafts are best treated as short-term borrowing rather than a permanent financial safety net.
Is an overdraft cheaper than a credit card?
Sometimes, but not always. Many arranged overdrafts charge high interest rates, so compare the total borrowing cost against credit cards or personal loans before deciding.
Should I use savings to clear my overdraft?
If your overdraft interest rate is higher than the savings interest you’re earning, using some savings to clear the balance could save money overall. However, keep enough accessible cash for emergencies.
What’s the difference between arranged and unarranged overdrafts?
An arranged overdraft is a borrowing limit agreed with your bank in advance. An unarranged overdraft happens when you spend beyond your available balance without prior approval, which could lead to declined payments and account restrictions.
Author
Tim Heming
Personal Finance Expert
Tim Heming is a journalist and editor who has written about personal finance for national newspapers and consumer websites for 15 years. Tim enjoys providing no-nonsense information to help consumers...
Reviewer
Victoria Russell
General Manager - Commercial
Vikki has worked across financial services for over 20years, and for the last 15 years, created and nurtured a career within MoneySuperMarket Group, leading to her current role as General Manager for...
