If it feels like you’re never going to get rid of your overdraft, don’t despair. This step-by-step guide will help you to tackle it once and for all.
1. Switch your current account
If you’re paying interest or fees on your overdraft, you don’t have to put up with it.
You can still switch your current account even if you’re overdrawn, particularly if you’ve used your overdraft sensibly, haven’t frequently gone over your limit, and you have a good credit rating.
Just keep in mind the size of overdraft your new bank gives you may not be as generous as you’d hoped.
Switching to a current account that won’t charge you for being in the red will instantly save you money and help you to pay off your overdraft more quickly.
The Nationwide FlexAccount, for example, offers an interest-free overdraft for three months.
Try to use those three months to pay off as much of your overdraft as you can as once they are up, you’ll be charged 18.9% EAR (variable) on arranged overdrafts.
Alternatively, if you can cope with a relatively small overdraft, First Direct’s 1st Account offers a consistent £250 interest-free overdraft. You’ll be charged 15.9% EAR (variable) on arranged overdrafts above this.
Plus, if you switch to the account using the Current Account Switch Service, you’ll earn £100, so long as you pay in at least £1,000 within three months of opening your account.
Paying in at least £1,000 a month or having another product with First Direct, such as a mortgage, will also mean you won’t pay the £10 monthly fee on the account.
2. Draw up a budget
If you’re regularly using your overdraft, this indicates your outgoings are higher than your earnings.
So, using your bank and credit card statements, make a list of all your outgoings and earnings so that you can see exactly what you are spending where each month.
This will help you to work out if you can make cutbacks. You might, for example, spot a magazine subscription you’re still paying for that you no longer need, or you might be surprised at just how much you spend on eating out and decide to cook at home more often.
Once you’ve done this, you’ll hopefully have some spare cash at the end of each month and can set aside a portion to put towards your overdraft.
3. Reduce your overdraft limit
As you start paying off your overdraft, speak to your bank and ask if it can reduce your overdraft limit to match your progress.
So if you had an overdraft of £500 and you’ve paid off £100, ask your bank to lower your limit to £400 to discourage you from undoing your hard work. Keep doing this the more you clear.
4. Use a money transfer card
If you’re finding that the above steps simply aren’t working for you, there is another option - a 0% money transfer card.
Money transfer cards allow you to move funds from your credit card into your current account interest-free. You can then use these funds to pay off your overdraft.
The downside to these cards is the transfer fee.
Virgin Money, for example, offers 41 months’ interest-free on money transfers made in the first 60 days, but there is a 3.8% fee (5% after the first 60 days).
Alternatively, Virgin’s Money Transfer credit card offers 36 months’ interest-free on money transfers made in the first 60 days, for a lower 2.9% fee (5% after the first 60 days).
Once the 0% deal ends, the interest rate jumps to 20.9% pa (variable) with both cards, so try to clear your balance before then.
Both cards have a representative rate of 20.9% APR (variable)*.
All overdrafts are subject to status and approval.
*Representative Example: If you spend £1,200 at a purchase interest rate of 20.9% p.a. (variable) your representative rate will be 20.9% APR (variable).
All credit cards are subject to status and terms and conditions. Over 18s, UK residents only. Terms and conditions apply. See MoneySuperMarket.com for further information.
Please note: any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.