How can I pay back overdraft with the least interest?

imjustagirl

Hello,

I currently have an account with RBS which has a £2000 overdraft. I graduated just over 3 years ago, so until now I haven't paid much interest on this. I'm now being charged upwards of £15 a month.


I've worked out a debt plan to clear the overdraft, but I'm trying to find a way to pay less interest. I already have a credit card which I'm paying off and don't know if I'd get another one. What do you think the best way to get it paid off with minimum interest is? I'm happy to switch bank accounts if I can find one which will let me have the overdraft to start with.

Thank you.

Hannah_10

There's either more to this, or you're taking guesses, lets see if we can clear up which so we can help you a bit more...

What makes you think you can't get another credit card?
Have you got any other debts at all you haven't mentioned?
Have you got defaults, CCJ's, other reasons to think you have a credit problem?
Have you seen your credit files lately?

imjustagirl

Hi Hannah,

I applied for another credit card recently and was refused. I have checked my credit file, and the only thing I can see that could justify this was a couple of defaults from 2004.

The other debts I have are the credit card I mentioned, and another overdraft (which at the moment is not charging interest, but I can't extend it either) and a bank loan.

Any advice will be welcome, thanks!

Hannah_10

Well first advice is to check all three of your credit files as they can all be different. You can find out which of them a lender proposes to use to check you in advance of applying for credit, you only need ask.
The CRA's are Equifax, Experian and Call Credit, they all offer free online "trial" viewing of your credit report (remember to cancel before they start charging) or if you ave already done that then go for the £2 statutory report by post, easily found on the links I have inserted. You do need to see all three.

Your cheapest safe way to repay an overdraft (which are usually on high interest rates) is to find a lower interest rate and borrow on that, then repay. This is why I am saying to take an active interest in the exact contents of your credit files (all three of them).

The other (less safe) alternative is to default on it, pretty easily done by opening a new basic account somewhere not in the same banking group and not using the overdraft account at all. If in doubt about where to open a new basic account go for a co-op cashminder account as the only other bank these link to in any way are Smile and Britannia Building Society. This is not safe though, because if you bank for some reason chose not to default you for ages then you can incur interest in that time and charges. These would usually be less than the interest of paying it off slowly, but there are no guarantees. That's why defaulting isn't a safe way to go. If you're angling for a default (at which point the amount owed will stop going up), it would be to your advantage to do so by entering into a Debt management plan. MSE forum member saltnvinegars' first post is an interesting account of what that is like, with regard to getting chased, being defaulted and so on.

The second option is far, far less preferable than the first. In fact the second option is only an option at all if you really can not afford to repay any other way.

There is a kind of wildcard alternative which is to make a full & final settlement offer. This factsheet from National Debtline explains that better than I can, in short it means offering them a lump sum of less than the value of the debt to clear it, coming by such a lump sum sounds like it's a problem for you though.

imjustagirl

Hannah,

Thank you so much for your thorough answer!

I am going to go with the first option, so fingers crossed I can get myself sorted out fairly soon.

Thanks again,

Nicola