Arranged Overdrafts and worries

movvy

Hello all,

I have a HSBC Bank Account and have done for many years. As part of the perks of having it as a Student and Graduate account I have managed to maintain a £2000 arranged overdraft facility on this account.

When I was a student and graduate I was pretty good with my money and never even dipped into this overdraft facility. However, as things seem to be getting everymore expensive, and I am having to provide for a small family, I'm finding that nearly every month without fail I am going into this overdraft facility.

Usually I am anywhere from £50 to £300 overdrawn. Now whilst this is a far cry from the £2000 cap it is not where I want to be, at all.

A few questions for you experts: I understand that using an arranged fee is a bit like a loan. As long as I don't go over the £2000 limit there is no impact on my credit rating and I'll just have to pay interest for the amount overdrawn (which I appear to be doing every month). Is this correct?

Second question: Has anyone got any tips to getting out of this constant cycle? The good months where we have been careful and tight on money spending, I feel like I'm making real ground in recovering this "debt" and getting back into the positive every month. But birthdays or unplanned events really hammer us. I am the only earner in my family and no new job is on the horizon. Do you experts have any tips to break this cycle?

Last question: Should I be feeling as bad as I do about this? I'm not fishing for a pick-me-up here, I'd just like to know if going into an arranged overdraft in the serial manner I have been doing for the last 12 months is really all that bad. I'm paying all my debts, I have never had cheques or direct debits cease or bounce. Often I feel like I need to spend x amount just to feed my family and going into this arranged facility to do that is a fact for now until I get a better paid position. Am I right to think this?

Thanks so much for reading and I look forward to hearing from you all.

dalesrider

You seem to have your head screwed on. In that you are fully aware of your situation and how to manage it.
I would think about reducing the O/D down to a lower level and at least that way you avoid getting in so far that you never get out of the O/D even on payday.

AppleMatt

An arranged overdraft isn't a bad thing in and of itself - using it has no negative impact on your credit history - you are simply using credit that has been granted. Nothing "wrong" with that!

However, as is obvious, it isn't all that desirable. Using it every month shows a short fall somewhere, which - fair enough - sometimes cannot be helped.

You mention surprise payments are the cause - could you consider spreading out the cost of birthdays etc. by saving over 12 months instead of paying in one whack?

The interest on being £50 in to your overdraft for part of the month will not be huge - if we take it that your rate is 20% (higher than I predict), that's £10 a year interest, if you were permanently overdrawn at £50.

Look at spreading costs & cutting costs where you can without feeling like you are not living. Are you on the cheapest energy deal, broadband deal, and insurance deal? Many people pay way too much for these services and you could even maybe make up for the shortfall if you haven't switched these in a long time.

Best of luck

movvy

Thanks for the replies both.

I am glad that I am right in my initial assumption and I guess the only thing to do is to keep trying to make the savings where possible. I've already renegotiated broadband and Insurance and I've managed to get some much better deals on this front. Energy is next on my agenda (and the last negotiable thing so far as current contracts are concerned). I'll work on spreading costs too - thanks for the tip!

The positive spin on all of this appears to be that although it does sometimes fluctuate on the heavy months, I'm nearly at that break even level whereby if I could just shift myself the other side of the zero for a month, I'm confident that I could maintain myself on the good side of the zero! Frustrating!