Pay off free overdraft (hanging over head) or save it.....?

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!

Lavendyr

Hello *waves* I presume that it is definitely interest-free - do you know how long it will remain so, or when they will reduce it?

I know the feeling about wanting to get rid of debt even if it is "free"! However it really does make more sense to save the money instead, as you can then *make* money on it as well (in the form of interest).

If you think that the bank may ask you to pay it off soon or may start charging you interest on it, I would make sure that you keep the funds necessary to pay it off somewhere that is easy to access.

However, if you know you have at least another year without needing to pay any of it off, I would suggest you save that £400 a month into a mini ISA (if you haven't already got one) - for instance, NS&I at 6.3% tax-free. You could still put it into the ISA even if you think you might need to access it, but you would not get as much interest as if you left it in, and you only get a limited allowance each year so it's best to try and use it up if you can.

If you haven't already considered it, I would look around at other current accounts as well and see how yours matches up. Many graduate accounts are not really that competitive compared to other current accounts, so you might be best off opening another current account as well. I had an HSBC student account that became a graduate account last June, which I still have and use, but I have my salary paid into my A&L current account which pays 6.1% interest on any credit balance in there each month, plus another (smaller) interest-free overdraft as a buffer.

I know what you mean, but don't just 'ignore' the overdraft as one day you will have to pay it off, and the bank can ask for it at any time! So keep it in your mind that you do have that debt, but as long as you have the funds set aside somewhere to pay it off, you may as well keep them somewhere that is profitable for you.

HTH