Arranged overdrafts can help cover unexpected expenses, but using one for your day-to-day costs can create problems.
If you’re regularly using your overdraft and don’t have any savings available, here are some actions you may want to consider.
1. Reduce your expenses
Planning a budget lets you see where you’re spending money and if there’s anywhere you could cut back.
Split your budget into ‘needs’ and ‘wants’. Needs are essentials, like rent and groceries. Wants might include eating out and holidays. If possible, start by reducing your wants wherever you can.
Look at your regular payments, such as your Direct Debits, to check they’re correct. There may be services or subscriptions you’re paying for that you no longer use or could pay less for.
Use our budget planner to help.
2. Set yourself a repayment plan
Any money you can free up can help reduce how much you rely on your overdraft.
Unlike personal loans and credit cards, overdrafts don't have a set repayment date. This can make it tricky to prioritise paying it off. But it’s important to get into the habit of chipping away at the amount you owe.
Try setting yourself a target of how much you'd like to pay off each month and then treat it like any other bill. Factor it into your budget so the money is accounted for, and you’re not tempted to spend it on other things.
3. Review your existing borrowing
If you have other debts you’re repaying alongside your overdraft, it’s important to look at how much interest you’re paying.
As most overdrafts have a higher interest rate than other borrowing options, it can be more expensive to have an overdrawn balance than other lending options for a long period of time.
4. Look at other borrowing options
A personal loan may give you a lower rate of interest than an overdraft. If you don’t think you’ll be able to repay your overdraft in the short term, you may want to consider taking out a personal loan to repay it. You’ll then be able to pay the loan off in a more structured way – with set repayment amounts and dates.
If you’re considering a personal loan, check theAPRto help you understand how much interest you'll have to pay. You can then compare it with how much you’re being charged on your overdraft. It's important to remember loans are subject to status.
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Another option is a money transfer credit card with a 0% interest period. This type of credit card lets you transfer money into your bank account (typically for a fee), which you could use to cover your overdraft.
You’ll then be able to repay the money you owe without incurring overdraft interest.
Make sure you can afford at least the minimum repayments before applying for a credit card. It’s also essential to check the APR, as you’ll be charged interest if you still owe money once the 0% interest period ends. It's important to remember credit cards are subject to status.
5. Reduce your overdraft limit
To help resist temptation, you may want to reduce your overdraft limit as you clear it to avoid going back into debt.
You can reduce your overdraft via online and mobile banking.
6. Speak to someone
If you feel like your overdraft is unmanageable, you may want to speak to a trusted family member or friend. They may be able to help reduce any stress you have and help you find the support you need.
Professional advice is also available.
If you’re an HSBC customer, visit our money worries page to see how we can help.
Citizens Advice, National Debtline or StepChange Debt Charitycan also provide professional assistance.
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