Bank discouraging overdraft reduction

SnowTiger

Some banks credit check all overdraft limit changes, both up and down.

Overdraft limits are generally soft limits. Your daughter may be able to break through that limit, which would put here in to an unauthorised overdraft.

If I were you I'd let her keep her current overdraft limit and work with her to manage her finances (better).

Does she have a smart phone? There are lots of apps out there to record and track spending. They show where money is going, which can be an eye opener. Pen and paper is a option if her phone isn't smart.

System

If she is having debt problems, a separate account for day to day use is a good idea.

I think it's called the piggy bank technique.

Payback the overdraft gradually and use the new account for day to day spends

[Deleted User]

tobyprice wrote: »

so you're saying that banks are right to warn students NOT to reduce their overdraft limits

It sounds like you've already decided on your stance.

Anyway, there's a good chance that, to reduce the overdraft, she'll get re-credit-checked for the new level, and if she fails that credit check, they'll want the whole amount paying back in one go, and start adding daily overlimit charges, as well as trashing her credit file.

The only reason for her to reduce the limit while paying it off, is a lack of self-restraint not to spend it.

I'd say they're giving good advice.

ondine

tobyprice wrote: »

I think it is very wrong however to discourage a student from reducing their overdraft limit.

Banks don't care about right or wrong :-)

tobyprice wrote: »

By discouraging the overdraft limit reduction, banks are essentially saying that they would prefer their customers in debt to maintain that potential to get into further debt than to remove the temptation. Excessive overdraft charges are worse than free overdraft facilities, but not having the debt in the first place is best of all.

You're absolutely right. Our interest goes against the banks' - they're after our money, and we pay them to be able to access their money for short periods of time.

Your daughter needs to learn how to be responsible and manage her finances. Reducing her overdraft is not necessarily the best way to get there. Perhaps she could open a cash card account and use that, and keep the one that has an overdraft at home in a drawer, truly for emergencies. So she has peace of mind knowing that the ovedraft is there but spends only what she has in her bank account. (NB. this is my way as an adult, not to overspend anymore, I'm leaving CCs at home. It seems to be working for now)

stclair

When I tried to reduce mine not long back I was told the same thing.

Working in lending myself the issue is people cancel thier overdraft they later then have a requirement for it then have to reapply and the outcome isn't always a positive one.

If they want to cancel or reduce then advise them that's what you want to do. I appreciate your assisting your daughter but theirs nothing stopping her just increasing it again a few weeks/months later.

[Deleted User]

Between me and Mrs B, we can access over £50,000 in credit in 24 hours if we choose to.

The key words there are "if we choose to". Nobody's forcing us to spend it all on plane tickets and a holdall full of cash, and flee the country next week.

agrinnall

billbennett wrote: »

Nobody's forcing us to spend it all on plane tickets and a holdall full of cash, and flee the country next week.

Although it must be tempting...

SuperHan

I agree with the bank.

What if she reduced her limit, then one day was on holiday and required emergency treatment, but didn't have the funds or access to the credit, but the overdraft would have covered her fees?

Similarly to billbennett, between me and the OH we could probably get close to £50k in cash tomorrow if we wanted it by maxing out all our cards and overdrafts. In actual fact, we use none of that (other than the credit cards that we repay in full). It's good to know that if there was an emergency, we can fund it by going in to debt that is available to us. We wouldn't do so unless there was an actual emergency though.

CLAPTON

tobyprice wrote: »

and to both tomtontom and nidO, thanks for your responses. I think this indicates I should be on a debt management forum, rather than this one, as the problem is specific to that scenario

yes, she should be concerned about the DEBT and not about an overdraft limit.

why does the OD limit matter to her (or you for that matter)

tobyprice

all answers helpful thanks. I suspect if I posted this on a debt management forum, I would get very different responses, although the responses about what the banks do (and are allowed to do) would be the same. It doesn't help someone who has built up a debt to tell them to show restraint. They need boundaries and a self-managed reduing overdraft limit is one way of doing this.

Having said that, she will probably NOT reduce the limit, with our agreement, for the reasons given by the bank and above. It won't stop me canvassing for a change.

Taking a step back, from the consumer's perspective, why should reducing your overdraft limit have any negative impact, other than having less capital available in an emergency? It doesn't expose the bank to any greater risk (although it might alert them to someone who is struggling with debt) and it helps the consumer, by reducing their exposure to debt risk. The main thing the banks won't like is getting less interest once the account removes the free overdraft facility after University and that is something we should be encouraging our children to avoid at all costs.