How to Pay Off Your Overdraft

by , Last Updated: 28 January 2015

Whether you're regularly going into the red every month or have been stuck in an overdraft rut for some time, there are ways to tackle this head-on. We look at how you can pay off your overdraft for good.

man using laptop at home

Overdrafts can be a useful feature of any current account, giving you a bit of breathing space if you don't have quite enough money to tide you from month to month, or if you need to make a big purchase but don't have quite enough funds.

In this way they can be an incredibly convenient method of temporarily increasing your purchase power, especially if you manage to replace what you have borrowed relatively quickly.

The problem arises when you find yourself dipping into your overdraft regularly and paying a hefty price for it - either in steep interest rates or charges from your bank for going into the red. If you find that you live most of the month in the recesses of your overdraft you may be paying upwards of 20% in interest, making this a very expensive form of borrowing.

There are ways to clear the balance and get out of your overdraft for good, but they'll all require a degree of patience and budgeting.

Set out your intentions

There is no magic wand or special trick for clearing your overdraft, it's going to take some commitment to clearing your debt. That means cutting back on spending and potentially going without a few luxuries.

You'll need to have a lot of will-power to deal with your debts effectively. So make sure you are ready for a long haul, it is a marathon, not a sprint but you can, and will do it!

Get some support

It's not always easy disclosing your financial problems with others, but try to share your plans with family and friends who you think will be supportive.

It's also a really good idea to find support with others who are going through exactly the same thing, if you can. Make the most of online communities where you can share advice, support and understanding with others who are working towards the same financial goal.

If you need some professional assistance, you can speak to Citizens Advice Bureau, or the StepChange Debt Charity.

Our guide, Where To Get Help With Debt, covers all the avenues of hope you can try.

Find out exactly what you owe

To know exactly where you stand you should first find out what the current balance of your overdraft is. This way you'll know how much you'll need to find to pay off your overdraft.

For more information on the size and cost of your overdraft, have a look at our guide; How Big is Your Overdraft and What Does it Cost?

Move to an interest-free overdraft

It is possible to move your negative overdraft balance to a current account with an interest-free overdraft. Check out our interest-free overdraft comparison to see the latest deals.

Doing so means you won't have to pay any interest on what you have borrowed. As many overdrafts come with interest rates of around 20% this could mean a significant saving - a balance of 1,000 in an overdraft with an interest rate of 19.9% would mean you are adding 199 per year to your borrowing.

For more information on switching with an overdraft, take a look at this guide: Can I Switch Bank Accounts If I'm in My Overdraft?

If you struggle to find a provider that will accept you, you might consider opening a second stand-alone account. Our guide; Could a Second Bank Account Reduce the Cost of Your Overdraft? goes through what you'd need to do.

Move your debt to a 0% money transfer credit card

Most 0% money transfer credit cards will offer you an interest-free money transfer period of up to 32 months, in which time you can use all your resources to pay off the debt without the sting of accruing interest.

there are some catches to this approach, including the 'handling fees' that most 0% money transfer credit cards will apply when you move your debt to them, although at around 3%, this is likely to be less than your overdraft charges.

Another thing to watch out for with 0% balance transfer credit cards is that the interest-free period will end, and your debt will then revert to the lender's standard rate - which could be more than you were paying on the overdraft in the first place.

Remember not to fall back into using your overdraft as a safety net once you have paid it off, or your hard work will have been in vain. Check our 0% money transfer credit card comparison for the best deals.

Consider a low rate personal loan

If you're paying extortionate overdraft interest rates paying it off with a personal loan could save you in the long run.

Providing you choose the right loan you will reduce your interest payments, which will have a benefit as you'll be able to pay down your balance faster and interest will accumulate at a slower rate

Check our loan comparison tables to get an idea of the rate you'd pay on an unsecured personal loan.

Use your savings to pay off your overdraft

If you can, use any savings you have to get yourself out of your overdraft. With savings rates offering such pitiful returns, your money would be better used by paying off debt and reducing the costs associated with your overdraft.

Check any savings accounts you hold to work out how much you've got. If you can't find the necessary paperwork, call your savings provider and ask for a statement to be provided. It's also worth checking the accessibility of any funds you do have; if there is a fee to withdraw you'll need to work out if it's worth paying to clear your overdraft.

Also have a think about any future bills you may encounter that you'll need your savings for. There's no point in clearing out your savings to pay off your overdraft only to go back into debt straight away.

For more advice on whether using your savings is the right option for you, read our guide, Should I Use My Savings To Pay Off My Debts?

What if you don't have any savings?

If you don't have any money currently saved up you could try to save up the money necessary to pay off your overdraft debt, then pay it all off in one lump sum.

This will most suit those who have an interest-free overdraft or an overdraft at a low rate of interest, because you can save up the money while your account remains in the red, without being charged a huge amount of interest on the debt.

If you are paying a high interest rate on your overdraft it may be more worthwhile for you to move your debt elsewhere, rather than leaving it to accrue interest while you save up the necessary funds.

If you decide to save up the funds necessary to pay off the debt, it's worth opening a high interest savings account. Every month transfer a portion of your income to the savings account, and keep doing so until you have saved up enough to pay off your overdraft completely so that you're back in the black.

This method can also mean you benefit from earning some interest on your funds in the saving account, and you should be less tempted to touch the money if it is tucked away in savings.

Budget and chip away

If you can be disciplined and are determined to pay off your overdraft, another alternative is simply to set yourself a strict budget and pay off your debt gradually month by month, little by little. Our guide, How to Write a Budget is a great place to start.

Try to cut back

First you'll have to work out your budget to see exactly what goes out of your account and what comes in every month, as it is likely that your outgoings exceed your income. Figure out what you can cut back on and set yourself a target of staying, say, an extra 100 below your overdraft limit every month.

Each month you will then have paid off 100 of your overdraft, and by budgeting strictly you can eventually eliminate your debt. You might want to help this process along by asking your bank to reduce your overdraft limit by 100 every month in line with the amount you are chipping away, meaning you won't be tempted to stray further into your overdraft again.

Close your overdraft forever!

Paying off your overdraft will involve an element of strategising and patience but it will be well worth it when you are no longer in the red, and can close your overdraft facility for good.

If you feel tempted to dip into your overdraft after this point keep in mind the charges, interest rates, and amount of time it took you to pay it off - which should be enough of a deterrent.

Check out our useful guide What to do if your bank puts up your overdraft rate.


Thanks I am desperate and feeling down have incurred this month 178 £ overdraft fees

by malajee, 3 Apr 2013

banks will not let you reduce balance in part its all or nothing

by julia3162, 25 Jan 2014

no, some do, my nationwide flex account allows me to reduce at £50 minimum a month...chipping away 3 months -£500 and going strong to clear this this year.

by ags1111, 12 Apr 2014

how to pay back overdraft, if I used them all

by tshepo, 18 Jul 2014

I've just been payed and it sais I'm still 80 overdrawn? Not had any money all month beacause the bank took my money last month Whitch put me into my unplanned overdraft been happening a long time now and I can't take it no more any advice??

by hammie87, 17 Apr 2014
Get our free money saving newsletter
Join over 450,000 other subscribers who grab our expert money tips, unmissable money guides & hottest bargains each week in our special email...

More Guides on Current Accounts

Free Money Saving Newsletter

Be the first to find out about the hottest bargains, biggest freebies & best deals each week! Terms & Conditions

Follow Us