Best way to sort overdraft?

Dfby30

Hi,

Sorry if this is in the wrong place!

I currently have an overdraft on my Halifax account of 1600. My monthly wages aren't this much meaning I'm never in credit so can't reduce it bit by bit. I get charged £1 per day so charges of 30ish pounds per month.
I've read a few posts about people opening up a basic bank account and having wages paid into the new one, so I guess my question is if I did this would I have to take the overdraft with me, or would I just pay it off monthly and treat it as another debt? I'm starting a self managed DMP as of Wednesday and am trying to juggle as much as I can to get the best deal. I do have the option of paying off the overdraft with a credit card, but the APR is 29% so can't work out if that's cheaper or not.

Thanks in advance

sourcrates

Transfer all your business to your new account, the OD stays where it is, and you just treat it as another debt.
Well done for going self managed, it's not hard to do, and gives you the advantage of keeping control.

Dfby30

sourcrates wrote: »

Transfer all your business to your new account, the OD stays where it is, and you just treat it as another debt.
Well done for going self managed, it's not hard to do, and gives you the advantage of keeping control.

Thank you

enthusiasticsaver

If you are paying £1 per day on the overdraft of £1600 that is 22.8% so that is cheaper than 29% so certainly not worth transferring to credit card. Can you get a 0% card or is your credit rating not good? The only other way you could get rid of the overdraft is to gradually reduce it each month so if you intend to pay £100 per month (plus bank charges) then you reduce it to £1500 then £1400 and so on.

On_my_way

You should treat your overdraft as a debt. Have you thought about doing an SOA and seeing where you can cut back to pay off your debts faster?

KirstyO

With my overdraft, I never made inroads into it until I got a bank account elsewhere without an OD and treating it as another debt. It went on my DMP, and got a portion of my monthly payment until it was the only remaining debt, then I just blasted it as fast as I could

Million_Percent

enthusiasticsaver wrote: »

If you are paying £1 per day on the overdraft of £1600 that is 22.8% so that is cheaper than 29% so certainly not worth transferring to credit card. Can you get a 0% card or is your credit rating not good? The only other way you could get rid of the overdraft is to gradually reduce it each month so if you intend to pay £100 per month (plus bank charges) then you reduce it to £1500 then £1400 and so on.

Are you suggesting the OP actually requests the bank to reduce the OD limit each month in line with the payments? If so, I've read in the past that frequent reductions of OD limits can negatively impact credit rating. I don't know this for a fact but I definitely remember reading it.

hohum

Million_Percent wrote: »

Are you suggesting the OP actually requests the bank to reduce the OD limit each month in line with the payments? If so, I've read in the past that frequent reductions of OD limits can negatively impact credit rating. I don't know this for a fact but I definitely remember reading it.

Yes. Some banks will rescore the entire overdraft as new credit application, which could end up looking like you are applying for credit on a monthly basis. It's worth checking with your bank as to what they do.

I was always nervous (rightly or wrongly) of moving my account as overdrafts can be (may not be but can be) recalled at will.

The way it worked for me - I started using YNAB which helped me conceive of the overdraft as debt. I could work out what was debt and what was spending, if that makes sense. I carried on using the same account but followed the virtual envelope budgeting method of YNAB. Each month I allocated a certain amount to overdraft, a certain amount to bills etc. I kept my 'savings' for rainy days etc in the account with the overdraft, because I reasoned I was not likely to get an interest rate that would beat the 19.8% interest I was paying on my overdraft debt. Each month when I got paid, I reduced the debt. I actually still 'owe' my budget £662 but because all my money is in my overdraft, I no longer pay any interest on it.

Whichever way you do it, find a way that you can compartmentalise what money goes where. The thing with overdrafts is it's very easy to 'double count' money which is where I fell down before. That and not having rainy day/ annual bill funds.

Dfby30

On_my_way wrote: »

You should treat your overdraft as a debt. Have you thought about doing an SOA and seeing where you can cut back to pay off your debts faster?

I'm starting self managed DMP tomorrow, currently around 13000 in debt. I couldn't get a 0% card so my sister has taken one out for me with 3500 on, and I've managed to agree 0% for 9 months with my own Halifax card which is now maxed. I may ring Virgin in a few months (as that card is now clear and the one with the 29% APR) and see if they will offer me 0% if I do a BT to clear overdraft. Lots of juggling to look forward to but maximum of 2 years until I'm debt free