How to pay off your overdraft

Whether you are 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.

Updated on 18 May 2015.

man using laptop at home

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.

1. Find out exactly what you owe

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.

Compare Debt Management
You can compare the best debt management plans that will help you find the best advice and repayment plans so you can clear your debt.
Compare Debt Management

2. Set out your intentions

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!

3. Get some support

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.

4. Take action

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.

Move to an interest-free overdraft

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.

Check out our interest-free overdraft comparison to see the latest deals, and when you are ready check out our guide to find out how you can switch.

If you struggle to find a provider that will accept you, you might consider opening a second stand-alone account. Our guide goes through what you would 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 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:
  • Handling fees: Most 0% money transfer credit cards will apply a handling fee at around 3%, though this may cost less than your overdraft charges overall
  • Interest-free period ending: When your deal ends, the account will revert to the lender's standard rate - which could mean you end up paying much more than before

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.

Consider a low rate personal loan

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.

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.

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.

Stick to a budget

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.

Chip away each month

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.

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.

If your bank starts raising your rate before you can pay it off, fight back with tools we offer in this guide.

Written by at money.co.uk

Compare Debt Management
You can compare the best debt management plans that will help you find the best advice and repayment plans so you can clear your debt.
Compare Debt Management

Further reading...

What happens after you are discharged from bankruptcy?

The day you're discharged from bankruptcy is a new start, all the debts you took into bankruptcy will be gone and you're free to start afresh, but what happens next? Here's how to start getting your finances back on track.

What's the best way to pay your credit card bill?

Paying off your credit card each month is about more than just making sure you can afford it. Whatever card you have, we look at how to decide how much to pay and how to make sure you don't miss any payments.

How big is your overdraft & what does it cost?

Overdrafts can be a very costly way to borrow money, and once they build up they can be tough to pay back. The first step to getting rid of one is facing it: here's how to find out how much you owe, what it costs, and how to pay it off.

Should I use my mortgage to pay off other debts?

Consolidating credit cards and loan debts into your mortgage can seem a 'no-brainer' - after all, given the size of the debt, mortgage payments are really low, aren't they? However, it's not necessarily the win-win strategy it seems - we explain.