How to clear an overdraft??

allybee101

Hi there,

I'm hoping for some advice on sorting out my overdraft please.

I have been sitting in my overdraft on my current account for the past year or more. This is an agreed overdraft but I am still paying interest on it (approx. £30 per month). I paid off 2 CCs in January (£1300 and £800 on original balances) and my only other debt is my student loanwhich comes directly out of my pay cheque.
I've never really taken much notice of my O/D but I realised the other day that I need to get this sorted. I suppose I got used to seeing the minus sign in front of the balance.

I range from £1200-1400 just after pay day to £2600-2800 at the end of the month. I have done my SoA and I know that there is around £250 left at the end of reasonable expenses but it's easily spent if I'm not careful.
I have £600 of savings but this is being saved for a trip in October and my MOT. Seeing it as a separate amount is helping me budge to save for this! I've also sent the form to cash in £300 of Premium Bonds so this will go towards my overdraft.

So
I saw one post on a thread that suggested opening a new current account, transferring all daily spends to that and then clear overdraft by paying in monthly.
However I am worried that the bank may request the full balance to be paid off immediately.

I also wondered about putting the spare cash in a separate account and then moving it over once I've saved a large chunk, but I'm still paying interest each month.

Or do I just keep using my account and watch my spending like a hawk?

My limit was £3400. I actually rang up today and reduced this to £2900 (I've never gone over this, even in busy months). They suggested I could take out a loan and pay it off over 3 years. Thanks to MSE I was a bit more savvy than I might have been a few years ago and asked lots of questions.
The interest rate would be 24.9% over 3 years (O/D is 18.5%) which means that on a loan of £2900 I'd be paying around £3960.
If I repaid earlier/overpaid then I would have to pay 58 days interest on the extra amount (this threw me a bit, and when I asked them to explain the lady couldn't tell me either).
Either way it seemed daft to be paying a grand extra to the bank so I stood my ground and said no.


Have I done the right thing? Should I take out a loan and treat it as a separate debt or shall I continue to try and clear it whilst using the account? Any advice gratefully received!

hayley11

I don't know if this will work for you because your overdraft is larger than what I had but I asked the bank to reduce it by a set amount (was £20 for me) a month until it was gone. Could you arrange something like this? It was good to see it going down each month and it was really straightforward, you don't even have to remember to pay it, they did it automatically.

Triangle

hayley11 wrote: »

I don't know if this will work for you because your overdraft is larger than what I had but I asked the bank to reduce it by a set amount (was £20 for me) a month until it was gone. Could you arrange something like this? It was good to see it going down each month and it was really straightforward, you don't even have to remember to pay it, they did it automatically.

I did this too Every payday I would phone up and ask them to lower the limit by £100. It was wonderful seeing it go down every month The bank were absolutely fine with it too

T
x

stqueen

Triangle wrote: »

I did this too Every payday I would phone up and ask them to lower the limit by £100. It was wonderful seeing it go down every month The bank were absolutely fine with it too

T
x

I also did this - over a 4 month period I reduced my £2000 o/d by £500 each month. It was a fabulous incentive watching it go down, and an even better feeling seeing the interest decrease every month! Personally I would avoid the loan (don't get into debt to pay off debt, etc), and focus on clearing your o/d as quickly as possible - you will be glad you didn't take out the loan!

allybee101

Thanks for the advice so far.

I don't think I could reduce my o/d by £500 a month but I will aim for £150 at the moment and focus on getting my maximum overdraft balance down to £2000 by the end of June. If I give myself milestones I focus on things a lot better!
I'm glad I didn't take out the loan.

Pay day is the 20th (so will arrive on the 18th- 20th is a Sunday).
My balance should be under -£2600 before payday. I have £35 in wallet which will last me til then.
I've just got a pre-paid Mastercard which I'm going to load with my weekly 'allowance' and groceries money and leave my Debit card at home. Hopefully that will help to reduce my spending even more!

Triangle

allybee101 wrote: »

Thanks for the advice so far.

I don't think I could reduce my o/d by £500 a month but I will aim for £150 at the moment and focus on getting my maximum overdraft balance down to £2000 by the end of June. If I give myself milestones I focus on things a lot better!
I'm glad I didn't take out the loan.

Pay day is the 20th (so will arrive on the 18th- 20th is a Sunday).
My balance should be under -£2600 before payday. I have £35 in wallet which will last me til then.
I've just got a pre-paid Mastercard which I'm going to load with my weekly 'allowance' and groceries money and leave my Debit card at home. Hopefully that will help to reduce my spending even more!

:T:T:T

Well done - I agree, I think not getting the loan was a good move!

Small milestones are definately the way forward - I think of my debt in £200 blocks (there are A LOT of these blocks!) and my weight loss in half stone blocks....having got a long way to go with both, its definatly eaiser to think of it in bite size chunks!

Good luck

T
x

allybee101

Ah yes, I also am trying to apply the 'bitesize chunks' method to my weight loss! Here's hoping it works!

My mum came to visit at the weekend and we went out for lunch (she paid - thanks Mum!) and round the shops, succeeded in not spending a fortune and had my eyebrows threaded. Hopefully I should be within my target for this month next month will be successful. Will have to make sure I update my signature with new numbers!
x

allybee101

Update on the overdraft demolition job!

Extreme of O/D is now down to -£2500. I haven't phoned the bank yet to change it, I want to take another £500 off so I need to make sure that I am well below -£2400. Progress hasn't been as speedy as I would have liked, I didn't reign in my spending as quickly as I should have. However I'm now aiming to save £300 a month to clear it.

I am tracking all my spending in my diary - easier to do when it's on hand. I don't always manage to get online to do it. Writing it down also makes it more visual and tends to help stop me in my tracks!

I've just heard that my assignment at work is being extended for a few more months before I return to my substantive job so I should have enough cash coming in to continue clearing the overdraft at the same rate. I'm looking forward to August's wage taking me below the £1000 mark when it's paid in, and by September I should be well under the £2000 mark.

Hoping to be clear of the dreaded minus sign by March/April 2012!

rdchick

You're doing super Ally, I need to do something like this. Which bank are you with? I am with Halifax and left uni last year and still have that 'delightful' £3000 overdraft... I took a loan out last year WISH I had been on here then as I am really paying through the nose for it... but overdraft first then loan...

If I rang Halifax and said could they reduce it by £50 on the first of every month do you think they'd be cool with that? xxx

SusieT

Well done, the more you pay off the less interest you will pay as well so it will soon pick up speed now.
One thing I did was to make my end of month for my spending (not direct debits etc) 2 days after the first payday going up by 2 days a month. When you add up the amount you spend on fares and food for 2 days it is not usually a lot but by gently stretching the budget you eventually have a fair bit in hand or off the overdraft.

allybee101

Thanks for the support!

I like that tactic Susie - I think I shall try and do something similar.

I think I also need to keep track of it on here more - making my progress public is an incentive to keep on top of it! I also have a post-it note in my diary with my monthly limit.

Rdchick,
One of the early pieces of advice on this thread was to ask the bank to reduce it by a set amount each month automatically. So you should be able to do it. Worth giving them a call.

I am with Natwest. The o/d is on my current account (my student account was changed over after I graduated in 2003). I kept my o/d limit to £500 when I was at uni, and then afterwards the bank would periodically send me letters extending my overdraft. I wish I'd contacted them and said bog-off at the time. Might have kept me in line a bit more!

My account was nearly always in the black (no more than £200 in o/d usually). I lived in the remote countryside for a few years and then in a small market town so there wasn't much to spend my money on. In 2009 I moved for a new job, to the bright lights of the city(!) and I think all the socialising/ furnishing a flat etc took it's toll. It was quite a shock when I looked back at my statements and realised that I'd dipped into my overdraft so much over the course of 18 months or so.

Oh well, it's all in hand now, I think.
Must go and plan my shopping list for supermarket tonight.