An overdraft can be a great thing, however, many people have trouble clearing their overdrafts.
They’re a safety net for months when payments are coming out before anything has come in. They’re great for emergencies, like when the boiler decides to go at the worst possible moment. And they’re just nice to give you peace of mind if times get a little tough.
But they can also be dangerous.
Sometimes it can all happen very quickly. You find yourself out of work for a month or have a large, unavoidable expense and all of a sudden, the money coming into your account – the money you usually live off of for the month – only pays back your overdraft.
Which leaves you with no ‘real’ money to use and forces you to use your overdraft again.
The next month it’s exactly the same. And the month after that. And so on.
Soon, it becomes impossible to clear your overdraft. Or, it certainly feels impossible to clear your overdraft. Short of a miracle, you’re not sure how you’re going to get back into the green. Students, this is a particularly familiar feeling, we know.
However, it is possible to clear your overdraft, if you know how. Luckily, we do. And we’re going to share our secrets.
How to clear your overdraft: Our top tips
Tip #1: Consider a 0% credit card
If you qualify for a 0% credit card (they’re usually for people with good credit) – and you’re completely sure that you’ll be able to pay the balance of your overdraft off before the interest rates kick in – then this is a particularly good way to pay your overdraft off over time. Not to mention, the credit card repayments will help your credit score.
Tip #2: If you don’t qualify for a 0% credit card, but have other debt, consider a consolidation loan.
Likewise, a consolidation loan will help you pay off all your debts and pay a manageable amount each month, bringing you into the green and building your credit score at the same time. Granted, the interest rates on consolidation loans are higher than the 0% credit cards, but you can often save yourself money by using one rather than paying off lots of different amounts with different interest rates.
To find out more about consolidation loans, check out our guide.
Tip #3: If you don’t want to borrow money to pay it off, chip away at it instead.
Overdrafts are scary if you think of them as one big thing. £1500 sounds like a scary amount of debt to clear. However, if you commit to paying off £50 or £100 a month, it’s still a big commitment, but it won’t sound half as scary.
Over time, you can chip away at it and clear your overdraft in almost no time at all. However, this takes discipline and restraint. When the month gets a little tight, it’s very tempting to dip back into your overdraft and undo all of your hard work.
Try hard to resist this temptation! Instead, make yourself a budget each month and stick to it.
Tip #4: Close the overdraft once you’ve paid it off
If you ask us, overdrafts are too tempting. They’re really easy to use and – when you’ve got one – it lulls you into thinking you’ve got more money than you have. That makes it easier to overspend and to get into financial difficulty. If you think like this, it makes sense to shut the overdraft once and for all and to take that temptation away.
Have you been trying to pay off your overdraft? What are your top tips? Let us know below! And if you’d like to find out more about consolidation, here’s an article we’ve written about the the pros and cons of consolidation loans. For further help and information, click here.