best way to clear overdraft

lauzt1987

Hi there. I currently have a £900 overdraft which is sitting at about 800 at the moment. I was unemployed after graduating for 4 months last year and so had to live off this overdraft for a while. I am employed again, albeit on a very low salary. I am currently making £12,500 (doing my professional tax qualifications so will hopefully be earning double that in 3 years time.)

I would love to pay off this overdraft but just don't see how I can. I get paid 879 each month, but 650 into my joint account which covers all household bill. 230 left is not a lot to live off for the month (have to pay 33 for train ticket) and save.

The good thing is that I only have the 2 bank accounts, and my salary gets paid into the one with the overdraft. This means I pay the interest off every month (about 10 pounds and so am not wracking up more debt. I am generally good with money but finding it hard to think of ways to pay this off. Thanks in advance!

clang_uk

Do you want to pay it off so that you're not living in the red - or to avoid interest payments.

The way I've done it in the past, is to wait until pay day and say "I'm going to reduce it by £50" you will need to save this money somewhere, but call the bank and reduce it. The only problem is then you have to stick to it or they'll charge you £25 (at least!) if you go over it.

The other thing you could do is to open a new account with another bank, put your wages in there and slowly pay off the overdraft.

lauzt1987

Thanks for the reply! Probably didn't make myself clear. I want to pay this off so eventually I am not in the red at all. And then I want to lower my overdraft limit right down (may keep it a couple of hundred for emergencies.)

I thought about maybe just bringing it down a little each month but not sure you can do that. I've heard rumours that you get credit checked very time you lower your overdraft. Thought about also opening another account that I could put a little into each month until I have 900. Then transfer it to the other account so my overdraft is paid off. But this seems a bit silly as I will be accruing interest on the full 900 during this time.

hellsbells0405_2

I have just had the same thing. However I took out a 0% interest credit card through egg. I know I'm transferring the debt really but at least I'm not getting charged for it and I can happily pay that off in manageable chunks

Lucifa73

From experience (mine and otheres') its harder to clear the overdraft if you're 'living in it' by having your wages paid into it. Its much easier to get a new account and treat the OD almost like a loan, paying off a budgetted amount each month until its gone. Its amazing how you can suddenly find that extra tenner to make it go down quicker.

I also kept a change jar and emptied my pourse of coins smaller than 50p on a daily basis and could usually pay a few quid extra off each month;)

Depending what you earn A&L may be an option for an interest free overdraft to transfer to...

hellsbells0405_2

Lucifa73 wrote: »

From experience (mine and otheres') its harder to clear the overdraft if you're 'living in it' by having your wages paid into it. Its much easier to get a new account and treat the OD almost like a loan, paying off a budgetted amount each month until its gone. Its amazing how you can suddenly find that extra tenner to make it go down quicker.

I also kept a change jar and emptied my pourse of coins smaller than 50p on a daily basis and could usually pay a few quid extra off each month;)

Depending what you earn A&L may be an option for an interest free overdraft to transfer to...

I can vouch for A&L accounts, I just took out 2 really easy to set up.

Does the small change thing work?

TotallyBroke

For me... I found I was living in and using all my overdraft up each month. So what I did was do an excel spreadsheet showing me what was in my bank account, what was coming out and on what day and then what was going in. Because of the running total I was able to see what state the account would be in at the end of the next month, the month after that and the month after that and so on.
I found that I needed to cut back in other areas, food shopping was my biggest cutback.Then each month on my spreadsheet I told myself that the overdraft had been reduced by £20 so this month I would be able to go to -900 but next month only -880 the month after -860 and so on. But I have never asked the bank to reduce the overdraft limit. It is still there but now my bank acount is not allowed to less than +300. It took time but I found it easier to shave £20pm so £5 a week on shopping or petrol than £10.
Also while getting into the habit of really cutting back I found that on some months I had money left in the overdraft before it was used up. I used that money against a debt that had a higher interest so I always used the maximum amount allowed of my overdraft.
Seeing months ahead on paper that you regulary compare against online banking you can see where you save.

What exactly are you paying for out of the joint account?
Sit down together and do a soa and see where you can cut back or stop waste.

sparklystar_2

i recently reduced my £1000 overdraft in a couple of months by using a second bank account for everything that goes out of my account. I then sold as much as i could on ebay to make some extra money and was able to put in some extra hours at work. I bagged up all the coppers in the house and paid them in as well! I was able to reduce my overdraft online gradually each time I had a chunk of money extra going in and it kept me motivated.

good luck! it's a nice feeling when it's gone

lauzt1987

Thanks so much for your reply 'totally broke.' An income and expenditure spreadsheet is a really good idea. It's quite shameful actually, I work in tax so I actually do I&E for other people every day and I've never thought to do it for myself!

Can't really shave anything off our joint account payments as this covers all our household bills, plus food and we're both already very careful with money. I really only got into this mess because I was out of work with no savings.

The 0% balance transfer card sounds like a good option too. Although I think I have quite a bad credit rating (mainly because i've never had any credit! and because i've moved house a lot.) So not sure that would work for me.

Feel so much better after just discussing this. many thanks everyone!

JimmyTheWig

lauzt1987 wrote: »

But this seems a bit silly as I will be accruing interest on the full 900 during this time.

What interest rate are you paying on your overdraft?

You will probably find that you can save money, and hence pay it off, quicker by treating the overdraft as a debt that you pay off and using another account for your money to go into rather than something that you live in.
You may find that you pay around a fiver interest extra each month, but I would imagine it would be easy to repay much more than that each month if you could see it there reducing every time you paid money off it.

BigCraigJohn

The 2 account method is imo the way forward. Get an account with a different bank though to anyone you have any link with. Set up a standing order every month for say £40 and try and forget about, maybe routinely lower the limit every few months or something so you dont have temptation, if you have some spare pay towards it.