getting out of your overdraft can be tricky, especially if you have been in the negative for a while.
If you’re like millions of other overdraft prisoners, you want to get out of your overdraft for good. Continue reading to learn five simple methods for accomplishing it.
Overdrafts can be useful. When you first used yours, it was certainly a huge relief to know you have a way to pay unforeseen bills. However, if you continue to use your overdraft, it may begin to feel less beneficial and more like a jail.
If you’re barely keeping your head above water, or paying your overdraft off only to plunge back in, you’re not alone. According to Equifax, over a fifth of Brits were overdrawn in 2023, making it the second most common type of debt. Each year, banks generate billions of pounds through interest charges, fees, and other costs associated with overdrafts.
Here, we’ll share five essential steps for getting out of your overdraft for good.
1. Make a budget
If you’re reading this, it means you’ve discovered a leak in your finances: something is costing you more than you can afford. The trouble is that you may not know where or what the issue is. To identify the source of your problem, create a monthly budget that includes everything you spend money on, from food and rent to subscriptions and a pint with friends.
List everything in your budget. Don’t leave out the small items like a drink from a corner shop or a cup of coffee from a cafe. We get it. It can be embarrassing to look at your expenses and think, ‘am I really spending £40 on this?” However, the more honest and accurate you can be here, the better equipped you’ll be when it comes to getting out of your overdraft.
2. Cut back on expenses and look for areas to save
Once you’ve made a budget, it’s time to look at where your money is going each month. Rent and utilities aren’t things you can realistically cut back on, but you’ll find other areas you can reduce or altogether eliminate from your monthly expenses. Look for things like:
- Unused or underused subscriptions or apps
- Unused or underused memberships to gyms
Cutting back in these areas can often give you an extra £20-40 a month that can be redirected toward cutting down your overdraft balance.
Additionally, you may be able to bring other expenses down. If you have a track record of safe driving, you could be eligible for a lower car insurance rate. You could also save on petrol by walking or using public transport for shorter trips.
By keeping your eyes peeled for unnecessary expenses and other costs that can be renegotiated or reduced, you can lower your dependence on your overdraft and pay off your balance for good.
3. Stop or reduce your overdraft usage
Remember the first law of holes: when you’re in one, stop digging. Granted, if you’re stuck in your overdraft, you probably depend on it to a certain extent, and cutting it out altogether might not be a feasible option. However, this is a crucial step toward improving your situation.
If you can’t stop using your overdraft immediately, start by reducing your usage each month. While you reduce your dependency on your overdraft, consider setting aside a bit of cash each month so there’s something other than your overdraft you can dip into if your budget goes awry.
4. Ask your bank for help
We know it can be hard to talk to your bank about your financial situation. It can feel like you’re admitting failure. However, your bank is legally obligated to treat you fairly. Get in touch with them, explain your situation, and ask if they can pause interest charges on your overdraft.
At the end of the day, it’s in your bank’s best interest to retain you as a customer. It might surprise you how much they can do to help, but in many cases, they can only give you that help if you ask for it.
The worst thing that can happen is your bank says they can’t change anything. No harm, no foul. But you could end up in a position that helps you get out of your overdraft faster.
5. Mind how much interest you’re paying
Overdraft interest rates can be high, often sitting close to 40%. That’s almost 10% higher than the interest rate on most credit cards and over 20% higher than most personal loans in the UK! To make those numbers more concrete, that means you’d accrue nearly £30 in interest alone every two months on a £500 overdraft.
If your overdraft’s interest rate is kicking you while you’re down, consider using a credit card or loan with a lower interest rate to pay off your overdraft. While you’ll still be making payments on the new line of credit, you could save hundreds of pounds in interest charges and get out of your overdraft faster.
However, be careful if you pursue this route. Poor discipline with your new credit line could put you deeper in debt, leaving you worse off than you started. Make sure you can afford the monthly payments on that loan so you don’t miss payments, damage your credit score, or be forced to dip into your overdraft again.
How to get out of your overdraft
- Stay determined: You might not feel like you’re not making any progress at first. Be ready for that feeling and keep going. You’ll thank yourself when you’re out of your overdraft.
- Practice your discipline: Getting out of your overdraft depends on your ability to do what’s best for your finances in the long run. It’s not always easy to think that way, so don’t be discouraged if you come up short of your initial expectations.
- Ask for help if you need it: It can feel like asking for help is shameful, embarrassing, or somehow indicative of failure. Remember that millions of people have been in a situation just like yours. There are several options for getting help, whether it’s from your bank, a friend or family member, or debt counselling service. To get help, you have to ask, but you’ll be glad you did.
Get out of your overdraft and improve your finances today
Being in your overdraft for too long can seriously damage your credit score. It tells lenders that you’re struggling financially and are dependent on credit. While that can do serious damage to your credit score, the good news is you can start improving your credit by getting out of your overdraft.
Are you struggling with the damage of your overdraft usage on your credit score? At Boshhh Mobile we offer phone contracts for bad credit boosting your credit score.
