It is common for people to have the odd, unexpected expense crop up before payday, and having a pre-arranged overdraft can come in handy in these circumstances. An overdraft allows you to tap into a pot of money that the bank has agreed to lend you at a pre-agreed interest rate.
Having an overdraft gives you a degree of flexibility, and it is convenient if you have direct debits or standing orders that leave your account before your payment arrives. The short-term borrowing of an overdraft can help you avoid incurring late charges or having suppliers cut you off.
However, using an overdraft too frequently can lead you into a dangerous trap. It is tempting to use this pot of money for things other than short-term emergencies. Overuse of an overdraft can put you into debt that you might not be able to pay back quickly. If you are in a situation where you are overusing your overdraft, taking the following steps can help you.
Alter the Date Your Bills Get Paid
We’ve already stated how beneficial an overdraft can be for bridging the gap between when your bills get paid and when you do. A better solution is to alter the date that your bills get paid to after you have been paid. If you get paid on the first of the month, set up your direct debits and standing orders to be paid on the second or third. Changing these payment dates should not be difficult; you can amend the direct debits and standing orders via your online banking. Be sure that you inform your suppliers that you’re altering the dates.
Switch Bank Accounts
If your current bank doesn’t offer particularly attractive terms for your overdraft, you may want to consider changing to one that does. Even if you are only using your overdraft for a couple of days per month, a high-interest rate can soon mount up. Some banks may not charge you anything at all to use an overdraft facility.
Moreover, you might even be offered other incentives to switch to another bank, so it is worth taking some time to shop around. For instance, swapping to a First Direct account will land you a windfall of £50 and an interest-free overdraft facility of £250
Talk to Your Bank
If you like your bank so much that you couldn’t bear to go somewhere else, try talking to them. A conversation about your overdraft facility may lead to them, giving you more flexible terms. Play the loyalty card – who knows what they might give you to retain your business.
Use Your Savings Similarly to an Overdraft
There is little benefit in having a healthy savings account earning little, or zero, interest if you are charged for using the bank’s money. You can use your savings similarly to the way you use an overdraft. You might have to dip into your savings account every month to bridge the gap between paying and being paid. However, it is your money, so you are not being charged to use it. Be sure to reimburse your savings account once you get paid, though.
Reduce Your Overdraft Facility
If you get into the habit of using your overdraft too much, you may find that you also start to use it for unnecessary purchases. A way to get around this is to get your bank to reduce your overdraft facility. Reducing the overdraft will reduce the temptation to use it unnecessarily.