Pay off overdraft?

gg2011

Morning :-)
Currently got a embarrassing amount as an overdraft (£2990) I have £2k saving and wanted to know is it best to pay off overdraft (currently pay £50 charges a month) or save the money?

I have got another £1200 in a government ISA (First time buyer scheme)

My credit rating isnt the best so thinking is it worth paying it off....?

Thank you

AnotherJoe

Pay off the overdraft. If you are saving for a mortgage then when you come to apply, the fact you have an overdraft will count against you, and the amount will be deducted from what they would loan you.

That's aside the simple maths, you will not better the cost of the overdraft with any savings interest.

redped

Is the £2k all the savings you have (apart from the ISA)? If so, then I'd use most of it to pay off the overdraft, but keep a few hundred pounds back as an emergency fund, e.g. a £1500/£500 split would immediately halve your overdraft.

AnotherJoe

Redped makes a good point. And once you've done that focus on clearing it entirely.

colsten

http://www.moneysavingexpert.com/savings/pay-off-debts

Thrugelmir

Pay if off immediately. You've always got the overdraft to fall back on.

Going forward retain some savings for emergencies don't lock it all away in the HTB ISA.

colsten

Thrugelmir wrote: »

Going forward retain some savings for emergencies don't lock it all away in the HTB ISA.

Money isn't locked away in an HTB ISA. It's all instant access - although you'd most likely not be able to make up for it (the details about the "fully flexible ISA" have yet to be published and it is presently unclear whether this would apply to the HTB ISA).

gg2011

Thank you all for your advise. I've transferred £1500 into my current account so my balance looks better :-)

Will pay this off then as mentioned above then save.

Thank you

jimjames

As an example of why it's better to pay it off.

I have £2000 in a TSB account paying the best rate on the market at 5%. That nets me £6-7 per month.

You have a similar amount as overdraft that costs you £50 per month. So if you're getting the best return as I do, you're £43 worse off per month. If you're not getting 5% then you'll be in an even worse situation.

Over a year you'd have paid out £600 overdraft interest and fees but only gained about £70 interest on the savings. Pay it off and you'll immediately free up some money.

YorkshireBoy

The savings available will depend on the provider/specific account. For example, with some of the Halifax/Santander/Nationwide current accounts they have daily fees rather then debit interest.

So some cases, you may as well keep the savings making a little interest as the fees will be the same regardless of actual balance.

Flobberchops

Pay off as much as you can. You're paying more in overdraft fees than you're earning in interest, and in the case of an emergency you have an equal sum of available money in either case (dipping either into your overdraft or savings). There's no reason to not use all of your liquid savings to clear as much of the overdraft as possible.

This would stop being the case if part of your overdraft was fee-free. Also I wouldn't personally touch the HTB ISA.