Recent figures suggest that more than a third of cash-strapped Britons have used their current account overdraft facilities in the last 12 months – with many relying on overdrafts to cover day-to-day living costs and household bills.
But while an overdraft facility can be a useful way to shoulder unexpected expenses, it is not a good way to borrow in the long term.
If you are constantly in the red, or only have a positive balance for a few days each month, it is therefore sensible to take steps to clear your overdraft.
Here are our top tips for getting back into the black.
Avoid penalty charges
If you breach your agreed overdraft limit, then your current account provider will hit you with penalty charges, as well as a sky-high interest rate.
Even though your aim is to pay off your overdraft, a good first step may therefore be to extend your authorised overdraft limit – as long as you are not tempted to spend more as a result.
To avoid exceeding your limit, it is also a good idea to check your balance regularly and to only use cheques – which could be paid in at any time – when absolutely necessary.
Stick to a budget
One of the most obvious ways to make inroads into your overdraft is to reduce your spending. And the best way to cut back on your spending is to set yourself a budget – and stick to it.
To do this, start a spending diary in which you note down everything you spend over a week (or a month if possible).
This will allow you to get to grips with your spending habits, and work out where you could save.
Ways to reduce your outgoings to achieve this include tracking the week’s lowest prices on your essential buys, using voucher codes to slash your weekly shopping bills and shopping around to see if you can get a better deal on your gas and electricity.
Switch your current account
Most current accounts charge about 19% for authorised overdrafts. However, there are some accounts offering much cheaper borrowing facilities.
If, for example, you only have a small – but stubborn – overdraft, you could avoid paying interest altogether by switching to the First Direct 1st Account. It not only offers an interest-free overdraft of £250, but also pays new customers a £100 switching incentive.
You will, however, need to pay in at least £1,500 each month, while overdrafts of more than £250 will incur interest at 15.9%.
Transfer the debt to a 0% credit card
While many credit card firms will not accept overdraft debt, certain credit cards do allow you to transfer money into your current account – thereby clearing your overdraft.
The Virgin Balance Transfer Credit Card, for example, offers a 20-month interest-free period on all balance transfers, including money transfers.
There is, however, an upfront fee of 4% of the amount being transferred, while the deal only applies to transfers made in the first 60 days. The interest rate also leaps after the first 20 months.