Paying off an overdraft

nortyshaz · 4 April 2007 at 10:26PM

Some advice please,

My partner has a £2000 overdraft which we have been living off for the last few months as when he wages goes in it just about covers it but then we end up using it again, it seems like a never ending circle.

I suggested to him opening another account, with different bank, with no overdraft and then paying back a certain amount to the account at the moment, Does anybody know if the bank would be ok with this, well i know they wont be happy about it but if we are paying it back am i correct in thinking that the bank cannot take any legal advice?

I have taken first steps to reclaim bank charges which total to £1000 (there abouts) so once we have got them back we will only owe them £1000.

Any advice would be great!

Snaggles · 4 April 2007 at 11:23PM

I think technically the bank can withdraw an overdraft facility at any time. Some banks will do this if, for example, you stop having your salary paid into the account (this happened to hubby's Yorkshire bank account), although some banks will only be bothered if suddenly there are no credits at all going in.

If you are reclaiming charges from them, they might ask for the account to be closed anyway though, so it would be well worth getting another account set up now, just in case.

CLAPTON · 4 April 2007 at 11:35PM

there seem to be two issues here.. taking them in inverse order

if you are reclaiming bank charges then they might withdraw the overdraft facility so opening a new account and having all your income paid in would be a good idea.

however, the mere fact of having a second account won't of itself help pay off the OD.. for that you have to increase your income and/or reduce your spending..

have you post a full SOA?

chocolatefish · 5 April 2007 at 2:24AM

I was once in this situation. I did open another account, then set up a monthly DD to pay a set amount into the overdraft account to eventually pay it off. However this was a student account, so there weren't the same requirements to have a salary going in each month. I have had an Abbey (non-student) account with an automatic overdraft that I rarely used, but when I stopped having my salary paid into that account they did write and told me the OD facility was being withdrawn.

You could do it the opposite way round though.

1. Work out your SOA and a budget that you can live on while gradually paying the OD off*.
2. Continue to have the salary paid into the OD account.
3. Open another bank account to use as your main account.
4. Arrange to transfer all your income, minus the OD payment, to the new account each month.
5. You gradually pay off the OD, reducing the limit as you do, and you basically don't touch the OD account until that's done.

e.g. You earn 1000 a month. You work out on your SOA that you can afford to pay off 50 per month on the OD. On payday 1000 goes into the OD account. The day after payday 950 gets transferred to your new account - and you live off this for the month. Each month that happens you are paying 50 off the OD without even having to do it. When the OD is paid off to 1500, you phone up the bank and reduce the overdraft limit. Then do the same when it gets to 1000 and 500 and 0. You don't touch the OD account in the meantime.

* This is really really really important - if you really want to reduce the OD you can't be dipping into it all the time to supplement your expenses. Sort out your monthly budget and stick to it!

nick1977 · 5 April 2007 at 10:13AM

One thing to consider is that most current accounts calculate interest daily, so at the moment although you are paying interest on the overdraft, at some points in the month very little is accruing (i.e. from when you get paid to when the large bills come out). If you get another current account and swap your salary to that, the o/d will always be high throughout the month, so the o/d interest charged each month will more than likely go up.
IMHO, it's better, if you can, use tips from this site to reduce your outgoings (maybe increase incomings too) and just use will power to get the balance down - it'll save you money. Check what your overdraft interest rate is too. The higher it is the more this will apply.
**EDIT**The only thing that clouds this is the possibility of the overdraft being revoked when you reclaim the bank charges.

Hope that makes sense!
Nick

Storm · 5 April 2007 at 10:56AM

I agree with Nick, that taking all the money out at the start of the month is going to mean you get charged more interest each month on the O/D. What you could do instead is set out your budget, make sure you note down everything that is coming out of the account (I find dealing in cash easier as I withdraw a set amount each week) and at the end of the month your O/D should be less than the previous month.

However, as I have found, it's far too easy to dip back into it if you've had a bad day etc, so getting the bank to decrease the limit each month should help.

Pop up a SoA - see southernscousers sticky - and you'll get loads of advice on where you can cut back each month to pay this off.

AliceBanned · 5 April 2007 at 11:51AM

It does happen - my bank suddenly withdrew my £300 overdraft, giving me two weeks' notice, and would not budge on it despite my having banked with them for 12 years. The reason they did it they said was nothing to do with my current account; they had spotted that I had a recent CCJ. I was most upset that they made things harder for me because of that, but in the end I got a second job for a while and paid the overdraft off, and now enjoy not living off an overdraft at all. £300 was not a large amount of course but after much hysteria over the sudden withdrawal of the overdraft it actually did me a favour as psychologically I actually feel my earnings are my own now.

Years ago I had a "reducing overdraft" with another bank, and your bank might do this - where they reduce the overdraft monthly by a certain amount on a certain date, to help you stick to paying it off, even if very slowly.

onedayiwill · 5 April 2007 at 12:15PM

My bank withdrew my £2000 overdraft with 2 weeks notice. Obviously I didn't have £2000 to pay it off with! I called the bank and agreed to reduce the overdraft by a set amount each month (they asked me what amount I could manage). It worked very well though of course I had to get the extra income (extra work hours, selling things on eBay) ... then I got my charges refunded and the overdraft was wiped out by these

Now overdraft free.

I agree that even if the bank haven't withdrawn your overdraft it may be a good idea to get them to reduce it by a certain amount each month - this will stop you building it back up.

Jamielad · 5 April 2007 at 12:27PM

Did the bank give you a reason for withdrawing the £2k overdraft, such as not paying in salary or something? I have an overdraft facility which I do use, and don't feel comfortable that at any point they could withdraw it for a reason I can't control!

onedayiwill · 5 April 2007 at 12:40PM

Hi Jamie,

My account was in good order (apart from the agreed overdraft). I had the account for 7 years and my monthly salary paid in every month since opening.

They bounced a DD payment which would have taken me 5p over my £2k limit. That's what happens when you live close to the edge

They then charged me for the bounced payment, then they charged me for going over my £2k limit. Then they wrote and withdrew the overdraft because I was £60 over the limit...

The bank has the right to withdraw the overdraft at any time. You don't have to go 5p over the limit

They can just choose to do it. It's there in the terms and conditions. However, I think if they are making money off you (interest..) they probably don't care to until it seems you are not managing anymore (by going 5p over the limit :rolleyes: ) at which point they start to panic that they might never get their money back and withdraw it!

nortyshaz · 5 April 2007 at 6:17PM

Thank you all for taking the time to respond ..you have all given me different things to think and talk about with my partner.

Thanks again

Paying off an overdraft

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