Sounds ridiculous but - do you consider overdraft as "debt"

brokeinwales

Hiya, couldn't think of a better place to ask this, so here goes, it's part practical financial question, partly about attitudes ....


I know the general advice is that it's ridiculous to have savings and debts at once. I was discussing this with a friend who has just opened an ISA to make regular payments and is very proud of graduating to being a "saver" rather than being in debt - she's a responsible grown up now because she saves. She then confided that she actually has a large overdraft - like many people, on payday she gets topped up so she's in the black, but once she's paid out all the essentials like rent and utility bills, she's always back in the red again.

She considers herself debt-free - but I consider the fact that I currently live off my overdraft (though I'm working on it...) to mean I'm in debt, even though the interest rate is pretty low and there's no repayment schedule, I would really be stuck if the bank suddenly decided to claw it all back at any time in the next couple of months, (as they could do). So therefore I'm in debt and I wouldn't even consider saving until I've paid it all off.

This isn't the first time I've come across this attitude. Mentally, because I know after I've paid everything I need to pay for the month, I'll be £1000 overdrwan , I consider myself to be £1000 in debt (for example) regardless of the fact that it may be only a few days after payday, so technically I'm currently in the black and "debt free" - yet other people have basically said to me that overdraft "doesn't count".

I expressed my debt worries to my sister a while ago, and as soon as she found out I was talking about an overdraft rathe rthan a credit card debt she seemed to think I was over-reacting. Maybe I am? Even someone who works in a bank told me that overdraft "isn't considered a debt." (My father, on the other hand, gets freaked out if he's overdrawn by 50p! Generation gap I guess....)

What take do you people have on this? Do you view overdrafts differently to other debts?

Joby_2

I agree overdraft is debt. Because of my ex (& our old joint account) my bank won't even give me an overdrat on my single account.

tasha-debt

I do see my overdraft as a debt but its not a priority for me to pay yet, its the last debt I will be paying.

In my mind debt is money that you have spent that belongs to a financial company this includes an OD.

Imagine if teh bank suddenly asked for your friends OD back. She would be better of splitting her monthly saving payment between her ISA and OD.

gonzo127

i think the view on overdrafts is a dangerous one but not uncommen, i find that someones view on a overdraft shows how much they actually understand about debt

someone who doesnt see an overdraft as debt usualy has minimum understanding on finances

someone who sees the overdraft as debt is usually someone who has a handle on money

hostie1985

I think that an overdraft is debt (i've never had an overdraft). I was taught at a young age that if I do not have the money for something I wanted to buy, I will have to save for it.

My ex thought that an overdraft was not debt (he had overdraft, loan, credit card and car HP) - but he was awful with his money!

Hostie

xx

Snippa

I see my OD as debt, and would always pay that off before saving. But it doesn't worry me in the same way a credit card debt would. It's just kind of a part of life, and a useful tool for managing money.

I quite like HBoS new £1 a day OD charge though, as it's forcing me to be more careful, and make the balance last longer each month. At this rate, I'll be right out of it in a few months.

System

An overdraft is 100% a debt. If it's money you owe someone/an institution then it's a debt. I'm not sure how anyone can not consider this 'debt'. :think:

DGJsaver

an ovedraft isnt a debt , if your not in it....

lincs1205

Hi Brokeinwales, i have just finished paying my overdraft off it was £2000 and i kept increasing it while i was doing my nurses training, i have gradually been paying my other debts off and i was determined to get rid of my overdraft so i moved banks and paid my overdraft off by standing order and in lump sums, i was also trying to save but someone on one of the other forums pointed out that i was paying more in interest to my overdraft than i was getting on my savings so closed savings account and put lump sum towards overdraft. I now have my balloon payment for my car to save/pay for then thats it until i get a mortgage. sorry for the long post. I guess what i am getting at is that an overdraft is debt my dad freaks at the word.:)

Tixy

I think whatever my overdraft is the day before payday - thats how much I really owe, yes the balance goes positive the next day but the vast majority of that money goes elsewhere.

People do find it hard to view it as a debt or repay it as a debt, which is why it can sometimes help to set up a new current account and treat it like any other debt.

Actually its the worst sort of debt in someways - as its repayable on demand.

tori.k

To me an OD is a debt, so your friend is only debtfree on pay days, but in saying that i wouldnt be without the peace of mind that my OD gives me, we are on the final leg of our DFJ. and reduced our OD level a couple of times over the last 18 months but in our case its cheaper for us to use the OD rather then the risk of bouncing a DD or not clearing the credit card by the end of the month.
Our overdraft is now less then half our monthly wage just a buffer zone really we couldnt live in it like we use to.