If you have an overdraft then you may wish that you could pay it off or perhaps pay it off more quickly than you are already. They are different to other loans in the way that they work and it is important to understand how they do work and how you can save money by not using them.
An overdraft is associated with a current account. Customers that have a good credit rating will be offered the opportunity to have an overdraft. The amount will be set by the bank and they will be able to spend more money than they have in their account as long as it is within their overdraft limit. There will be an interest rate for this borrowing as well as possibly a fee as well. Some people manage to borrow more money than they have been allowed. This is known as an unauthorised overdraft and it will cost a lot more money, using having a one off charge and daily fee for being overdrawn. Each financial institution will have different ways of charging and will charge different amounts and so it is worth looking at their terms and conditions to check this before using the overdraft facility.
Having an overdraft can lead to problems though. Some people will go overdrawn every month due to the fact that they spend more money than they have and it can get worse and worse. For example if you go overdrawn by fifty pounds one month, when you get paid the debt will be paid off plus the fees and interest. Then next month you may find it just as hard to manage so you find you are fifty pounds short again. However, due to paying off the last month’s overdraft plus interest you will owe over a hundred pounds. If this keeps happening then you will get overdrawn more and more each month, until you have to go into a very expensive unauthorised overdraft to manage. It is therefore best to avoid going overdrawn if you can and if you are overdrawn pay it off as soon as you can. Otherwise it may not be long until you are so far in debt that your pay will not even pay off the overdraft.
It can be worth looking carefully at how much you are spending and what on. See where you can cut back on your spending so that you are not struggling to make ends meet at the end of the month. This may mean that you have to cut back on luxuries, find cheaper utility suppliers, shop in cheaper shops and perhaps making your own food rather than eating out, getting take away food or eating ready meals. Keeping a note of how much money you have and what you are spending really helps as well. You may not really be aware of where all of your money is going, but by looking carefully at bank statements and then noting down all purchases, you will soon get an idea of where you spend money and where you could potentially cut down. Make sure you are aware of any direct debits and when they go out of the account as well, so that you do not get caught out.
It could also be wise to find more ways to add income each month. This could mean taking on more work, perhaps doing some overtime or working a second job. It may even be worth looking to change jobs so that you have one that pays more. This may not be easy, but it is worth looking into and considering. It could make a big deal of difference and may be the only way that you will be able to pay off the overdraft.
It could be worth considering asking the bank to cancel your overdraft facility to help you not to use it when you do not need to. Sometimes it can be tempting to spend that money, even though you get charged for doing so and by cancelling it, you would be taking away that temptation. You would have to be very careful to make sure that you never went overdrawn though as an unauthorised overdraft could get you into even more trouble and so you will need to keep a very close eye on your bank balance and your spending, noting down everything that you spend.