Living in Your Overdraft? Cost Saving Tips & How to Get Out

Are you finding it hard to escape the cycle of living in your overdraft? It can be worrying, but you’re not alone. Every month, over 170,000 people visit our site seeking advice on dealing with debt and overdrafts. 

In this article, we’ll explore:

•  What an overdraft is and how it works.
•  What might happen if you keep living in your overdraft.
•  How you can stop using your overdraft and move to a no-overdraft account.
•  Ways to save money and cut down your bills.
•  How to handle unaffordable debt and possibly write off some debt.

We understand your struggle, and we are here to guide you. We’ll share cost-saving tips and steps to get out of your overdraft. We’ll also explain where you can get more help if you need it.

Remember, everyone can have money worries at times. But, with the right knowledge and help, you can make things better.

What is an Overdraft?

Overdrafts are one of the most popular solutions for those who need money fast. There is no doubt that an overdraft can be handy when it comes to emergencies and short-term borrowing—just make sure you can pay it back within the timeframe set by your bank. Unfortunately, many people become dependent on their overdrafts and find themselves exceeding their limit regularly. In fact, the Financial Conduct Authority (FCA) suggests that almost 13 million people in the UK were overdrawn in the past year.

What Happens if I Stay in My Overdraft?

2.1 million people were living with overdraft debt in 2016

Whether your debt has built up over years of overdrawing money or you’re stuck in your overdraft due to a large one-off payment, living in your overdraft is not unusual. Unfortunately, it can be tough to get out of it. Unless you have an authorised overdraft, you will be charged interest when overdrawing. Even if you have an authorised overdraft, most banks still charge a fee if you stay overdrawn after the agreed amount of time has passed. Ultimately, living in your overdraft is an expensive way to lend money.

If you stay in your overdraft, don’t make any repayments or acknowledge your debt for 6 years, you can get it written off. However, it is unlikely as your bank will take every step possible to get you to repay your debt.

Can I Get Out of Paying my Overdraft?

If you have accumulated overdraft debt by continuously overdrawing money, there are a number of ways to get out of it. The ideal solution varies depending on your personal circumstances. If you are struggling with severe overdraft debt, it is a good idea to seek advice from a debt charity. Although you probably won’t be able to completely write off your debt, these charities can help you manage your financial situation more efficiently.

How to Get Out of Your Overdraft

If you are sick of living in your overdraft and are looking for a way to become less dependent on it, here are a few top tips.

Stop Using Your Overdraft

If you don’t need it, stop using it.

An overdraft can be an expensive borrowing solution if you can’t get out of it within the set time limit. If you don’t actually need to use your overdraft, the best way forward is to simply stop using it. When it comes to non-essential spending, try to exercise restraint, or put aside some cash to use instead.

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Switch to a No-Overdraft Account

An effective top tip to help you control your spending is to switch to a no-overdraft account. By swapping over to a basic bank account, you won’t have to worry about spending beyond your means. With these no-frills accounts, you can only spend the money that’s already sitting in your bank account. If you try to overdraw, your request will be rejected, which means you don’t have to worry about being charged for overdrawing.

Pay Your Bills as Soon as You Get Paid

A great way to dodge overdraft interest and charges is to pay your bills as soon as you get paid. Try to shift your standing orders and direct debits around so that your bills arrive around the same time as your income. This can help you stay out of your overdraft for longer.

How to Get Rid of Your Overdraft Debt

Giving up an overdraft altogether isn’t a feasible choice for people who are already deep in debt. Overdraft charges and interest can easily add up, and the last thing you want is for things to get out of hand. If you can’t manage your debt you can risk serious consequences such as going bankrupt. Read on for a few helpful pointers to help you manage your finances.

Establish a Budget

Establishing a realistic budget and sticking to it can help ease your financial situation. You can make a huge difference to your finances by figuring out how much money you have coming in and out of your account every month. Creating a budget will help you identify your spending patterns and reduce your risk of spending more than you earn.

Save, Save, Save

Budgeting will help you figure out how much you need to put aside for bills and repayments. Whether you can spare £5 or £50, saving a little every month can help prevent you from living in your overdraft. Not only will this reduce your reliance on your overdraft, but you can also use your savings to clear any overdraft debt you may have.

Get in Touch with Your Bank

Being in a situation where you cannot see yourself paying off your overdraft any time soon is tough. If you feel backed up against a wall, it is worth speaking to your creditor to see if you can come to an agreement. There is a chance that they’ll reduce your monthly limit or offer you a lower interest rate to help you manage your debt. They might even agree to temporarily suspend charges and interest, or offer you a lower interest rate like they did with this forum user from Money Saving Expert.

Get Debt Support

If you’re feeling overwhelmed, don’t worry. There are plenty of organisations and online resources to help you figure out the best way to get out of your overdraft. You can find more information about getting out of debt from our debt information hub. This includes articles about IVAs, and how they can help people with debt. We’ve also created letter templates in case you want to speak to your creditor but don’t know where to begin.

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Repay with a Low-Interest Rate Credit Card

A credit card with a low-interest rate can help you manage your debt. If the interest rate of your overdraft is high, it is a good idea to shift the balance over to a credit card with a lower interest rate to reduce the amount of interest you pay. The same goes for a low-interest rate loan. Just make sure you can keep up with payments if you plan to repay your credit card or loan with other credit. Otherwise, you can risk adding on extra interest and charges.