Reducing an agreed overdraft

glittercakesxx

Hi, Please bare with me as I have got myself confused and am wondering if I am right...

I currently have an arranged overdraft of £700 that we pretty much live in and am feeling like there is no way out of it fast. I want to reduce this by £20 a month with the bank until we are overdraft free as its a more manageable amount for us.

So would this be correct...say my income is £1500pcm
First month would be £1500-700od = 800 left - 20 to reduce od = 780 left available
2nd month - £1500 - 680od = 820 left - 20 to reduce od = 800 left available
3rd month - 1500 - 660od = 840 left - 20 to reduce od = 820 left available

I have accounted for the £6 odd we get charged per month in our bills so haven't included this

is this right? that we would be £20 better off per month? or have I thought about it incorrectly?

glentoran99

glittercakesxx wrote: »

Hi, Please bare with me as I have got myself confused and am wondering if I am right...

I currently have an arranged overdraft of £700 that we pretty much live in and am feeling like there is no way out of it fast. I want to reduce this by £20 a month with the bank until we are overdraft free as its a more manageable amount for us.

So would this be correct...say my income is £1500pcm
First month would be £1500-700od = 800 left - 20 to reduce od = 780 left available
2nd month - £1500 - 680od = 820 left - 20 to reduce od = 800 left available
3rd month - 1500 - 660od = 840 left - 20 to reduce od = 820 left available

I have accounted for the £6 odd we get charged per month in our bills so haven't included this

is this right? that we would be £20 better off per month? or have I thought about it incorrectly?

Well yes as you have the £20 you have paid of the overdraft the month before


BUT


if you do as you say, if you survive on £800 in the first month your overdraft is then gone and further calculations not needed

glittercakesxx

Thank you for you fast reply

I was just worried I was missing something out and that I would be putting is in a sticky situation or something...
I wish we could do that for the first month but unfortunately with 2 children and only one wage it is difficult with saving to move home and pay of credit cards which need to be done first.

glentoran99

I wouldn't be reducing it with the bank though each time as constant limit reductions looks bad

glittercakesxx

does it? I have never really thought about it

glentoran99

glittercakesxx wrote: »

does it? I have never really thought about it

Yeah as there is no record as to why it was reduced so some lenders see it as the bank has maybe decided for adverse reasons, By all means reduce it when you want but id be inclined to clear it first then get rid of it,

also it means your contantly using 100% of available credit rather than


97% 95% and so on

I know its hard to resist temptation to spend it, been there done that, still paying!

glittercakesxx

my only other option is wait til june when everything will be paid and just put 700 into our account as our other debts wil be paid then its done...

glentoran99

glittercakesxx wrote: »

my only other option is wait til june when everything will be paid and just put 700 into our account as our other debts wil be paid then its done...

No by all means reduce it, but don't change the limit with the bank, just use £20 less of it each month

molerat

Some banks credit check you with each change to an overdraft, they look at it as a new overdraft instead of reducing the current one. They may then decide you are not worthy of any overdraft and recall it completely - where will you be then. The overdraft limit is a facility not a target, just reduce your spending and you will still be that £20 better off but with a safety barrier should you really need it - what an overdraft is really for.

colsten

glentoran99 wrote: »

I wouldn't be reducing it with the bank though each time as constant limit reductions looks bad

I am not sure about the "looking bad" reason. A much better reason for not regularly asking for the limit to be reduced is that most, if not all, banks treat the reduction as an application for an overdraft. Depending on the criteria they are using at the time, they may not grant you another overdraft and you may be left high and dry.

If you are unable to reduce your overdraft balance by controlling your spending habits, it is probably best if you apply for a loan to pay off your overdraft. The loan will almost certainly be cheaper than the overdraft and you know exactly how much you have to re-pay each month.

Note that a bank can call in the entire overdraft at any time, even if you are not asking for a change to the limit.

glittercakesxx

So really I would be best just waiting til June when all the other debts are paid and just putting 700 into the account and then getting rid of the overdraft all together?