Should I reduce overdraft or keep it once paid off?

concrete_kid

Hi

I'm in the process of paying off my £2000 overdraft that I've had since university. I'm hoping to pay it off by the end of 2014. Should I then reduce it to £0 or keep it? I heard somewhere that having credit available but not using it increases your credit worthiness, is this true?

Thanks

[Deleted User]

Do you have a reasonably sized emergency fund?

Kate_fixing_it

Personally I'm going to be getting rid of mine after three months in the black in keeping with the theory that (aside from seasonal items) if I haven't used it in three months I don't need it but that's just me and I may change my mind and significantly reduce it at that point.

Will you be tempted to use it if it's there as "available funds" when you see your statement? If so I'd say get rid but that's purely my opinion.

Kate x

Monkeyballs

Hi,

If you have a decent emergency fund then then I would probably reduce it drastically, I don't think that getting rid entirely is so much of an issue.

I know you said it was from Uni but have you had debt problems in general? Do you think if you had maybe £3-500 you'd be able to avoid using in frivolously?

MB

DD265

I got rid of mine entirely (it was a wonderful feeling!) but only because I had other access to money and I was absolutely rubbish about staying out of the overdraft.

Monkeyballs

DD265 wrote: »

I got rid of mine entirely (it was a wonderful feeling!) but only because I had other access to money and I was absolutely rubbish about staying out of the overdraft.

LOL, with my money management skills I would do the same (although perhaps not suggest it to those more skilled ).

MB

Tixy

I don't think having an unused overdraft has much of an impact on how a potential lender would view your credit file.

concrete_kid

I don't have an emergency fund because it would all be going towards my overdraft. I don't have any other debts (anymore) and am confident that I wouldn't slip back into it - I can say this now but definitely wouldn't have been able to say that a few years ago.

DD265

In that case why don't you drop it by a bit each month - say £100 or £250 or even £500, depending on how much you can afford to drop it by. That way you're gradually removing the buffer.

dotdash79

I would leave it at about £500 but not use it, this will give you a buffer to build up an emergency fund.

Overdrafts are expensive if you use them a lot, it's a useful credit facility to have and if you get rid of it and have no emergency savings what are your options? Payday loan, I'll rather not?

[Deleted User]

I asked a local debt advice centre, if I should keep my overdrafts.

They said yes.

I then asked both banks, and they each said yes (well they would, wouldn't they ), as they don't cost me anything, so long as I don't use them.

I decided to keep them and, as a result, in a dire emergency, I now have access to at least £1,300 (and growing) of cash, which is quite reassuring.