Being in a position where you are frequently using your overdraft to get by can be a very frustrating experience. Once you use your overdraft, you will want to ensure that you can pay it off as quickly as possible to get your finances back on track.
One of the reasons why you can benefit from paying off your overdraft quickly is that if you frequently use your overdraft on a monthly basis, you could be paying up to 20 per cent in interest and bank overdraft fees.
This can stack up to a lot of money each year, which you could be putting aside in a savings account or spending on something you enjoy. By learning some top tips to prevent you from using your overdraft in the first place, you can avoid getting yourself into difficulty.
You can find out more about paying off your overdraft quickly in our detailed guide below.
Option 1: The old-fashioned way
It might sound like a no-brainer, but sticking to a strict budget each month, that allows you to factor in paying off your debt in manageable chunks, can help you pay off your overdraft quickly. It will take determination on your part, but it can be done and should be the first option to consider before you take more drastic measures.
Step 1. Budget
If you’re going to take the plunge, then the first thing you will need to do is to work out the budget that you will need to stick to. Figure out exactly what comes into your account each month and what needs to go out of your account each month, this is important because in most cases your outgoings will be greater than your incomings – which is why you’ve likely to have used your overdraft in the first place.
Once you’ve taken these first bold steps to help you master your finances, then you can start to build a clear idea of the places you can start to implement some cut-backs. This will allow you to prioritise some of your income to go towards paying off your overdraft.
Step 2. Make small overdraft payments
You can then start tackling your overdraft debt bit by bit once you’re working to a clear budget each month. An easy way for you to stay on track is to set yourself mini-targets, such as £50 – £100 each month. You can then track your overdraft decreasing in size each month until you get to a point that it’s all gone.
Option 2: Move your overdraft to an interest-free overdraft
Any negative overdraft balance can be moved across to a current account with an interest-free overdraft. This will ensure that you won’t continue to pay any interest or bank charges on your overdraft while you clear your debt.
Switching bank accounts doesn’t have to be a pain in the neck, find out how you can make paying off your overdraft quicker by switching bank accounts here . The main thing you need to be sure of is that your new bank account will offer you a large enough overdraft limit to accommodate your current balance.
Some banks even offer switching incentives which can also help you pay back some of your overdraft debt. Check out our current account comparison tables for some of the latest switching deals.
If you are frequently caught out by overdraft debt, interest payments and bank charges each month, perhaps you could consider cutting yourself off by closing your overdraft. This will give you some breathing space and allow you to sort out your finances and set a monthly budget to help you stay on top of things.
If you are ever tempted to use your overdraft, remember that you have charges and interest due to pay and how long it took you to pay it off the last time. You can get to a point that you won’t need to use an overdraft, unless you have a financial emergency, which is what it’s there for.
Option 3: Dip into those savings
If you’ve got a little nest egg stashed away then now might be the time to dip into it to help you manage your overdraft and interest and bank charges, before they start to manage you. Your money could be better used paying off your debt for the time being – especially when interest rates on savings accounts are low.
Obviously, savings are there for a rainy day and not to be used lightly, but if you’re finding it very difficult to pay off your overdraft and find yourself chasing your tail, then it might be worth using some of your savings to repay your overdraft. Just remember to pay yourself back when you are next able to, with interest if you so choose!
>>MORE: 9 Habits of Successful Savers
Option 4: Use a 0 per cent transfer credit card
By moving your overdraft to a 0 per cent transfer credit card, it could be cheaper for you to clear your debt. All you will have to do is pay back the credit card balance during the interest-free period.
Depending on the credit card provider, the interest-free period could be up to three years long, which will give plenty of time for you to pay off your overdraft and the best part is that there won’t be any interest to pay. However, there are some things that you will need to be aware of before you start making enquiries.
1. Handling Fees – most of the 0 per cent transfer credit cards that are available on the market will require a handling fee of around 3 per cent.
2. Interest due at the end of the interest-free period – after the interest-free period ends, you will be required to pay interest on any remaining funds left on the credit.
3. You must always meet the minimum monthly payment.
Option 5: Low rate personal loans
It is sometimes possible to pay off your overdraft debt more quickly, especially if you have a large one that has accumulated a lot of interest and bank charges, by taking out a personal loan with a low interest rate.
Taking on more credit in order to settle your overdraft is not a decision to take lightly, however. When considering this option, you will need to make sure that you choose the right loan to help you cut the costs of your overdraft payments and ultimately help you to pay it off faster and with less interest.
Option 6: Seek advice from those you trust
If you are struggling to manage your overdraft payments each month, then you can always seek help and advice from your close friends and family.
It’s not always easy to open up about money trouble, but as they say, a problem shared is a problem halved. Whether you approach a trusted friend, a reliable family member, Citizens Advice or the Step Change Debt Charity, there are plenty of people and resources out there that can help you.
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