Overdraft Problems

Gethino

Hi all, I'm hoping anyone could give me some advice or guidance. I'm currently a primary school teacher earning around £28,000 a year however my finances are not good. I'm banking with HSBC and at the moment and I end the month just within my £3500 overdraft. I left university 5 years ago with a £1500 overdraft and I just can't seem to reduce it. As you notice I'm now £2,000 worse off than I was 5 years ago which is ridiculous! I'm currently renting and my outgoings for the month is around £900 which leaves me with about £700 spending money each month. HSBC charge me about £42 a month for going into my overdraft. It's just a constant pain knowing that I'm nearing my £3500 at the end of each month. Any ideas on what I could do because I'm really struggling at the moment. My girlfriend is talking about buying a house in the summer and I'm a bit embarrassed that my financial situation might stop us from getting a mortgage and so on. Anyone been in a similar situation and came out the other side? I'd be grateful for any advice as to what worked and so on.
Thanks.

sourcrates

Hi,

Yes, theirs a very simple solution to your problem.

Open a new bank account, preferably one without an overdraught facility, and arrange to swap all your banking over to your new account.

Re-visit your budget, and attempt to pay a figure enough to cover the interest, and repay some capital on your OD each month.

This will give you the benefit of learning to live within your means, whilst also reducing your OD, which over time will be paid off, you could also ask the bank to stop or reduce interest whilst you achieve this, although that may affect your credit file.

But short term gain could ease long term pain.

Gethino

Thanks for that. Just so that I'm 100% sure of what you're saying.
1. Open a new bank account (preferably one without an overdraft facility)
2. Send all of my direct debits over to the new account. Make sure my salary now enters my new account.
3. Whatever I have left at the end of the month - use that to pay off my HSBC overdraft and at the minimum cover the interest which is roughly £42 a month.
Is that correct?
Question: Would I have any problem opening a new bank account due to my current financial situation?

sourcrates

That`s correct yes.

There are a range of "basic accounts" that most banks provide.

They don`t have any borrowing facility, and you are not credit checked for them, make sure the bank you choose has no affiliation to HSBC.

Some come with visa debt cards, others just with cash cards, so check first before committing.

You may have to search for "basic bank accounts" as they are not widely advertised, but are available to almost anyone.

indesisiv

Do a full statement of affairs, look back at your statements / make a spending diary and figure out where all of your money is going!
If all of your outgoings only total £900 then that is a lot of money you are wasting per month on nothing. Even leaving yourself £200 a month after other costs gives you £500 per month to pay this off.

Gethino

Yes, I'll be watching every penny when I get my wages this month. Regarding opening another account - Barclays do a 'Switching' account. Would that suit me? Would that just mean I transfer all my overdraft from HSBC to Barclays which wouldn't be any help? All I need is to open a basic bank account right? I'm thinking of going with Barclays.

Fireflyaway

The suggestion from sourcrates is something I have done and it worked well. The other thing is to ask the bank if they will reduce the overdraft each month so gradually it decreases. Not all banks will, but when I was with NatWest they did.
Do you live to a written budget? With £700 left over you should be able to get rid of it in no time if you live really frugally for a while. An overdraft didn't stop me getting a mortgage. It may reduce the amount you can borrow but there are many factors. If its arranged its probably not a huge deal but regardless you will feel better without it!

smb86

NatWest used to automatically reduce your OD if you asked them but now they don't. I've found the best way is once the funds are in the account that you want to reduce it by, to go into your request overdraft facility within online banking and then make a request for them to reduce it by the amount you've transferred. It normally takes effect within 24 hours, job done :j