‘The overdraft prisoner’ How to escape your overdraft
It’s estimated that 2million people in the UK are stuck in their overdrafts. It’s an easy situation to slip into; spending a little more each month than you can afford, knowing that the bank will take care of the deficit. Yet, it’s a lot harder to escape when the situation gets a little too far out of hand.
Despite being designed for short-term spending, far too many people are stuck in permanent overdraft for the long-term. This can mean paying fines and fees that escalate the debt and makes the process of becoming solvent again even harder.
Are you an overdraft prisoner?
Switching banks has become an action many of us now take for granted. Moving our money when there’s a better deal available is commonplace and easier than ever. Banks will now take care of transferring your monthly transactions, direct debits and standing orders for you.
But what if you’re in your overdraft, and you’ve found yourself overdrawn continuously, with no real means to escape?
You could be locked into your account because your overdraft has grown too big to make a switch? Or your credit score is too low to find a better option? However you’ve ended up in this position, there are ways to help yourself climb out of it.
How to escape an overdraft
The first real aim is to cut the cost of being overdrawn while you pay off the amount you owe. The second is to create a budget that allows you to pay off what’s outstanding.
Switching bank accounts to pay off your overdraft
If your credit score allows you to, and the amount you’re overdrawn is relatively low, seek out an account that offers cashback for joining and a 0% overdraft. Use the free money to pay off some or all of the debt you’ve accrued and the 0% rate to halt any of the fees you should be able to avoid paying.
0% credit cards can cut overdraft costs
Although it sounds counterproductive when dealing with debt, getting a credit card could be a good step towards getting your finances back under control.
If a credit card has a 0% interest rate, then the money you will save in fees could go a long way to help you get the deficit under control again. Some cards can offer the 0% interest rate for up to 28 months, providing a significant saving, especially on large overdraft amounts.
Stay disciplined, though; it could be tempting to add to your spending and debt with a fresh credit facility. Make sure you stick to only spending what you can realistically afford to.
Utilise a no-overdraft account to limit spending
You can set up a simple no-frills bank account to manage your current spending. Without an overdraft facility, this can help curb any excessive, unnecessary expenditure, allowing you to clear your overdraft account without adding to the problem.
Speak to your bank about your budget problems
Some banks offer high levels of customer service and understanding. These establishments may be able to advise and provide help in regaining control of your budget and the methods available to remove problematic overdraft charges.
Remind them what a great customer you’ve been, how long you’ve banked with them and all the times that you’ve been a model customer. They may waive some of your overdraft fees or help you to switch to a more appropriate account.
Remember—you will achieve the best results if you remain polite, calm and friendly. Even a reduced rate is a good result; it will save you money over the time it takes to climb out of debt.
You could be entitled to claim back charges and fees
The banks are all regulated to provide customers with fair and just treatment. In situations where customers have been subject to repeated charges for exceeding their overdraft limit that caused financial hardship, there could be a case for claiming against them.
There is no guarantee of winning any claim, but with no cost or risk to the applicant, it could be worth pursuing.
You will need to find out if you’re eligible to claim, and if you think you are, the financial ombudsman will decide on the fairness criteria of your case.
Methods to manage an overdraft and your budget
Make a realistic budget—and stick to it
Take a good look at your income and what you’re spending. This is the first step to taking control of your budget and paying off your overdraft.
Once you know what you can realistically afford to spend, decide on a sensible monthly amount to put towards paying off your overdraft. This should be made with consideration of the length of time it will take to clear the outstanding amount.
It’s imperative to set goals and targets and to stick to them. It may mean cutting back in the short-term, but if it means regaining control of your finances, the price you pay will be worth it.
Use your savings to pay off your debt
Having a savings account for unforeseen problems is great, but if you’re regularly overdrawn, it’s time to put that money to better use.
The charges on your overdraft will outweigh any interest you’re likely to make on your savings. If you’re left with a negative profit at the end of each month, it’s time to switch things up a little.
Clear the overdraft and then start working on rebuilding your savings.
Move your monthly payments to when you get paid
If you can organise your direct debits from your suppliers, utilities and creditors to just after you get paid, this will help you to stop spending money you don’t have.
It’s easy to forget about any bills or payments that happen at the end of the month that will push you into your overdraft or make you further overdrawn. Make sure you take care of the essential payments before you decide on additional spending.
Pay off the most expensive debts first
Find out which of your debts is costing you the most in interest and charges and work at paying that one off first. Once you’re free of the costliest debts, it should free up more money each month to deal with the rest.
Online tools to help with debt management, budgeting and your overdraft
There are plenty of budgeting sheets, spending plans and overdraft calculators on the Internet available to help. The more understanding of your spending habits, the sooner you’ll be able to regain control of your finances.
Use everything at your disposal to become more financially aware. Knowing what you can and can’t afford to spend is the best asset in removing unwanted debt.
If you are struggling financially, contact us today on 0808 2234 102. Our friendly experts are always on hand to offer you free and confidential advice to find the debt solution that’s right for you.