Overdraft limits - when to bring them down and when to leave some leeway

therealslimcj

Hi

Bit of a query to see how others do it...

I've an £1800 student graduate overdraft (should have come down a long time ago but the bank have missed it!) and I want to get rid of it (apart from mortgage it's the only personal debt I have).

BUT I'm not sure what to do. I reckon I can save about £400 a month to throw at itbut as it's my main account that would involve just leaving the money there when my pay goes in! SO....should I

a.Do that, just leave the money in and at the end of each month my overdraft can come down, then I can tell the bank to start bringing it down

b. Stick £400 a month into a savings account and get the interest then dump it all in the overdraft and close it

c. Just ignore the overdraft - it's not costing me anything

d. Another solution I've missed (!)

Help!

Crown

Hi, You havent said what interest rate your current overdraft is at?

If it is not free then I would go for option a and eliminate it ASAP. Once you have paid the overdraft off I would make sure you open a ISA or a savings account and save up at least one months expenditure preferablly 3 and then leave this as an emergency fund. Only then touch it if you are out of work ect. If you do this then you will not need the overdraft as you will always have that moiney to rely on.

If the overdraft is completley free then you have the choice of opening a ISA now knowing that you are earning more money in interest than it is costing you on the overdraft. I cant beleive that this would be the case though

Good luck

climbgirl

It sounds like the overdraft is interest free, so you're better off saving the money in a savings account each month, earning the interest and paying the overdraft off when you have the total money. If it's costing you interest, as Crown says, you're better off reducing it by £400 each month and ringing the bank to bring the total down. They don't like doing this but keep nagging them and they will!

I like the safety net of a buffer and I have a £200 overdraft facility on my account. I've never used it, not once but it's nice to know it's there. I keep it so that I can let my account run right down to a few pence without fear of an unexpected payment bouncing and costing me exorbitant fees!

Crown is right too, in advocating a few month's salary as emergency funds. You just need the discipline not to touch it!