You may not think too much of your overdraft, but at the end of the day, they’re a debt like any other. This fact was hit home quite drastically by several banks introducing 40% interest rates in 2020, meaning that your overdraft costs are more than they’ve ever been. While you might be able to speak to your bank if you’re still in financial difficulties due to the events of last year, this won’t last forever, and you’ll have to start settling your overdraft costs eventually.
Some banks may offer a 0% overdraft. If this is the case, then you don’t need to worry too much – it’s still worth looking into paying off your overdraft though, so you may find some of the following tips handy for that. So how do you cut overdraft costs before it’s too late? Read on to find out how to cut overdraft costs.
How much do you owe?
Overdrafts are often considered to be one of the most expensive debts to have, as well as being one of the trickiest to get out of as there isn’t a set repayment plan. So the first step in cutting your overdraft costs is knowing exactly how much you owe. Knowing how much you owe, or how large your overdraft is, can make it much easier to figure out how to sort a suitable budget out for paying your overdraft off, and resulting in cut overdraft costs too.
Check your balance, check your overall overdraft limit, and keep an eye on all your bank statements. If you know exactly how much you have just before you get paid, which is usually the furthest you’ll be in your overdraft, then you’ll know how much you need to spend to get out of the red. This is when you should draw up a budget, to see how much you have at the end of each month and how much can go towards cutting overdraft costs.
Claiming back past bank charges
While you no longer get completely ripped to pieces with overdraft charges, you still might be able to claim some of those extortionate overdraft costs back from your bank. Sounds pretty ideal, doesn’t it? There are a few criteria you have to meet, however, which include plenty of evidence as to your financial situation.
If you can prove that you were in financial difficulties at the time of these overdraft costs, then you have every right to get in touch with your bank and claim back on these costs. While it may not cut overdraft costs you have at the moment, you could still use this reclaimed money to help cut your current overdraft costs. This may not work for everyone however, and some banks may not go along with your claim, but it is always worth seeing what you can do.
Adjusting your Overdraft limit
The bigger your overdraft, the higher your overdraft costs – it’s as simple as that. One of the more simple, quick, and effective ways to cut overdraft costs is to lower your overdraft as you go along. Reducing your overdraft incrementally is a really good way you can cut overdraft costs. So if one month, you find you can pay back £100, do so by getting in touch with your financial provider.
Each time you hit a benchmark, contact your bank and ask them to reduce it by that amount. It’s really important that you don’t ‘re-borrow’ though, otherwise, you’ll undo all your hard work, so be sure to budget carefully for each repayment. Little by little, you’ll chip away at your overdraft, lowering your overdraft costs bit by bit.
Use your savings
Now, this method of cutting overdraft costs really isn’t the most popular, but it makes the most sense. If you’ve got some savings and an overdraft, you should be rethinking your methods. Basically, say you’ve got a £1000 overdraft that costs you £240 a year in interest, and your savings only earns you £10 a year at best. See how it makes sense!
Obviously using your savings to pay off your overdraft and cut overdraft costs is only feasible if you’re actually able to both pay off your overdraft and not completely drain your account – so only do this method if you’re sure you can afford to. Like with the other ideas in this list, writing out a budget plan is the best way to go about figuring out how to cut overdraft costs.
Shift your bill dates
Note down all the dates that your direct debits come out, and see if you can line them up with when you get your monthly income, particularly if that’s at the end of the month. This pretty much means that you stay out of the red for the longest, almost artificially boosting your balance.
Restraint is key with this particular method of cutting overdraft costs though, as you’ll want to make sure you have enough in your account to cover all the bills when they’re due. Using this method will also give you a clear indicator as to how much money you have remaining at the end of the month. After all, your bills have been paid, so you can put this extra money towards cutting your overdraft and lowering your costs.
Contact your bank
If you can’t switch your bank account, or don’t want to, and you aren’t quite sure what to do about your overdraft, get in touch with your bank. If they don’t know what your situation is, they can’t lend you a hand. If you’re honest about what’s going on, they may be able to put a freeze on your interest, or they might agree to a repayment plan going off what you can afford.
If you’re still struggling with your finances and need some confidential, one-to-one advice, there are lots of people that you can talk to. You can try contacting Citizens Advice, National Debtline and StepChange Debt Charity if you need more advice about your overdraft and how to cut overdraft costs.