Paying off a £1500 overdraft

savingmoolah

Hi folks,

This is my first post, and I'm not well up on how banks are run and all that so I thought you lovely people would be able to steer me in the right direction

This is my situation, I'm 26 and still living at home (not rent/bills free might I add!). I graduated from University in 2010 and have an account with HSBC with a £1500 overdraft limit. I want to get rid of the overdraft, so I can really begin to save for my future.

I hear a lot about 'switching' and receiving money for doing so, which sounds great as it could reduce my overdraft slightly.
My problem, is that although I am in full-time employment (have been for at least 2 years minimum with the same company), I'm only paid minimum wage. So after my pension and tax and NI I only come out with around £900 a month (then you throw in my rent, phone bill, broadband bills, train travel for work etc there's not much left to save with).

I'm wondering what steps are best to take in order to reduce the overdraft within the next year.
I don't have any other debts, and have a fairly decent credit rating.
Apologies if this sounds like a "Google it" post, but I thought I'd at least ask.

dano17439

You need dedication. There's no other way of clearing overdraft debt other than by not spending whats in your account. i would do it £100 a month at a time - i.e your balance the day before payday this month should be £1,400, then next month £1,300 etc etc

National_Debtline

Hello there,

If you're working over thirty hours a week you may be entitled to claim working tax credits, here's some further info: https://www.gov.uk/working-tax-credit/eligibility

Moving banks is certainly worth considering, we call this opening a 'safe' bank account. We have come across occasions where a bank has quickly removed an overdraft facility, this can cause all sorts of difficulties. Once you've moved to your new bank you should be able to negotiate an arrangement where you reduce the overdraft over a gradual period of time. It may be worth completing a financial statement to work out how much you can afford to reduce it by each month. There is a budget on our website: http://www.nationaldebtline.co.uk/england_wales/debt_advice.php#5

Do you have any other debts?

Best wishes,

David @ NDL.

Danni-R

I was in the same position (amount and bank wise) and the 1% at a time challenge really helped. Its easier to work out how to save or earn £15 instead of £1500!

savingmoolah

National_Debtline wrote: »

Hello there,

If you're working over thirty hours a week you may be entitled to claim working tax credits, here's some further info:

Moving banks is certainly worth considering, we call this opening a 'safe' bank account. We have come across occasions where a bank has quickly removed an overdraft facility, this can cause all sorts of difficulties. Once you've moved to your new bank you should be able to negotiate an arrangement where you reduce the overdraft over a gradual period of time. It may be worth completing a financial statement to work out how much you can afford to reduce it by each month. There is a budget on our website:

Do you have any other debts?

Best wishes,

David @ NDL.

Thank you for replying (and to everyone that has so far).

I took the detailed Working Tax test on that site, and it suggests that I might be able to claim around £20 due to my wage only being around 13k per year (before tax etc). Does this sound about right?

I have no children, and no other debts, no disabilities or grants etc.

A friend of mine (who works for Barclays actually), had an overdraft of £1000, and one month the day after payday the bank just took all of his wage to cover the OD. I know this is legal, but I'm worried that my bank could do that to me at any moment and leave me unable to travel to work, pay bills etc.


In regards to the idea of chopping it down every month by £100, I've been wondering if the best way is to just open a simple savings account online with HSBC and put the £100 a month in there. Then when I have either the full amount (or at least a good chunk) I can put it back into my account and reduce the overdraft limit then.
This would surely cover me in case the bank do decide to take money off me without warning etc?

FinanciallyUnsavvy

Hi, and welcome!

I'm in a similar situation - £1500 OD with HSBC that was built up from being a student (I graduated in 2009 though).

You are lucky in that you are dealing with this whilst you still live at home. Even though you're not living there rent-free your outgoings are still going to be drastically less than if you rented elsewhere.

I think the first thing to do would be to write up a Statement of Affairs (http://www.stoozing.com/calculator/soa.php) so you can see exactly where your money is going each month and see where you can save.

£1500 sounds like a lot of money, but it's easily tacklable. After my bills/monthly outgoings each month I'm left with approximately £500 (and have CC payments etc. that need to come out of that) but still managed to pay back almost £700 in the last two months - that's half your overdraft. If you are determined, can cut back a bit here and there, maybe bring in a few extra pennies, you can have it gone in a few short months.

There are some bank accounts you can switch to - First Direct and Halifax will pay you £100 to switch, and Nationwide do offer an interest-free OD which will save you a little bit. These won't solve the problem though - you just need to sit down and work out where you can afford to cut back.

Good luck - you can do it!

FinanciallyUnsavvy

savingmoolah wrote: »

In regards to the idea of chopping it down every month by £100, I've been wondering if the best way is to just open a simple savings account online with HSBC and put the £100 a month in there. Then when I have either the full amount (or at least a good chunk) I can put it back into my account and reduce the overdraft limit then.
This would surely cover me in case the bank do decide to take money off me without warning etc?

No - this wouldn't make a difference, except by kicking yourself in the foot by paying unncessary interest when you could be gradually decreasing your OD!

It is a real risk that a bank could just decide to stop your OD with no notice. BUT, instead of having your money in a savings account, if you have it in your current account, the bank can at least see that the amount is going down & this will work in your favour.

You could consider getting a second current account (with NO overdraft!) with a different bank (as mentioned above - could also get the £100 bonus too), and leave your HSBC account dormant, making a monthly payment of what you can afford against your OD. That way you know your money is safe, AND you're working to pay off your overdraft.

Danni-R

To put your mind at ease, HSBC called in my OD (£1500) just before Christmas last year (Dec 2013) and I graduated in July 06!

They did it because I wasnt paying any money into the account and it was clearly not my every day account.

It was a pain in the bum but I took a family loan out and pay that back at £300 a month so Its pretty much gone now and the account is in credit.

sam_in_leeds

I was in same boot few years back.

Bank wrote to me to say they were reducing my OD from £1800 to £500!

After the initial panic, I rang the bank and they agreed to reduce my OD limit by £100 per month.

That way they wouldn't take my wage as soon as i'd been paid and I could slowly reduce it back to a sensible level

Ring the bank NOW if you can, mine was surprisingly helpful.

Best thing I ever did budget-wise.i was more inclined to be sensible with my money and avoid going overdrawn than feeling like what's an extra £10 on an £1800 overdraft!

sam_in_leeds

Danni-R wrote: »

To put your mind at ease, HSBC called in my OD (£1500) just before Christmas last year (Dec 2013) and I graduated in July 06!

Smile (part of co op) called in my £2k od limit after 5 years!

savingmoolah

Hi guys,

Thanks for taking the time to read my post and respond.

I've read all of your posts, and will take this on board. I'll speak to my bank to keep them in the loop and ask them to cut my overdraft down by £100 a month. I'll have to scrimp a bit (after all my rent, bills, travel expenses, shopping etc I'm only left with about 3/400 to 'play with' for a month) so I'm just going to bite the bullet instead of investing in a savings account to tackle the issue.

If anyone has any more ideas or comments, feel free to post I'll keep checking back to this thread.

Thanks again guys for being so helpful! I plan on sticking around