Updated on 17 June 2015.
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, but there are ways for you to clear your balance and get out of your overdraft for good.
You stand you should first find out what the current balance of your overdraft is. This way you will know how much you will 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.
Clearing your overdraft, it is going to take some commitment to clearing your debt. That means cutting back on spending and potentially going without a few luxuries.
You will 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!
It is 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.
If you would prefer to seek professional assistance, you can speak to Citizens Advice Bureau, or the StepChange Debt Charity, alternatively you can read our useful guide that covers all the avenues of hope you can try.
Once you have all the facts in place, it is time for you to start tackling your overdraft debt head on, consider the following options in this guide to support you.
It is possible to move your negative overdraft balance to a current account with an interest-free overdraft. Doing so means you will cut out a large interest bill on your account.
For example: 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.
If you struggle to find a provider that will accept you, you might consider opening a second stand-alone account.
Most 0% money transfer credit cards will offer you an interest-free money transfer period for a set term, in which time you can use all your resources to pay off the debt without the sting of accruing interest.
A few things you need to be aware of before switching:
Check our 0% money transfer credit card comparison for the best deals to make sure that your hard work into paying off your debt would not have been in vain.
If you are 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 will 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 would pay on an unsecured personal loan.
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.
Read our guide on whether it is a good idea for you to use your savings to pay off your debt.
Remember, using your savings to pay off your overdraft could be a bigger cost saver as the interest payable on an overdraft will far exceed how much you will earn on any traditional savings account.
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.
If you are not sure how to set on up, read our guide to start yourself on the right foot.
First you will 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. Set yourself a target, an extra £100 below your overdraft limit every month for example.
Each month you will then have paid off £100 of your overdraft, and by budgeting strictly you can eventually eliminate your debt.
You can ask your bank to reduce your overdraft limit every month in line with the amount you are chipping away, meaning you will not be tempted to stray further into your overdraft again.
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.
If your bank starts raising your rate before you can pay it off, fight back with tools we offer in this guide.
Written by Sally at money.co.uk
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