Overdraft Loop?

peanut_butter

I have done some searches, but either I am not that good at it, or the info isn't there!

The bank several years ago gave my wife a £5,000 overdraft, the interest IS affordable, it was £88 per month (but now this month I think they changed it to £6 per day)... the problem is like I say, we can afford to pay that but we can never get out of the overdraft - because of the money being paid towards the interest.

It's as if the bank has lent that exact amount knowing that they will always get their money, but we will never ever get out of the overdraft?

I see solutions such as, get a loan - but no one will lend (probably because of the large overdraft?)

Get an interest free credit card (Limit is only £400, no where near the £5,000)

What do people do in these situations? I am sure that this isn't the only unique case out there?! :-\

peanut_butter

I should add that my wife did contact the bank, they gave her £100 (which was basically a free month) & Said that there is nothing they can do, they checked to see if they can loan to her, but they can't.

robber2

Increase your income or cut your expenditure to pay off the overdraught. Throw everything you can at paying it off. It may take a few months / couple of years but each month the interest you are paying will go down helping to reduce the debt faster until eventually you will reach the end of the month with a zero balance rather than a negative one.

Once your at this point instruct the bank to reduce the overdraught facility to say £500 or £250 .

good luck

Rob

peanut_butter

Thanks Rob for your help - We have cut back on everything we can think of, we could afford to pay an additional £30/£40 - so god knows how long that would take, not even worked that out :-\

peanut_butter

125 months maybe? :-\

sourcrates

If push comes to shove, ask the bank to freeze the account, stop adding interest, and allow you to repay the balance over time.

You will need to open a new basic bank account, with no borrowing facilities, but this will give you a new start and should allow you to live within your means.

It may affect your credit rating, but that maybe a small price to pay to get rid of the debt.

peanut_butter

When she spoke to the bank before to ask for options, they didn't mention that.. their stance was, well, you can afford the interest even if it does leave you with 0 left each month, so tuff luck... :-\ - so how would I go about asking for that ? - or just leave the account to run over the overdraft with charges for several months then ask for a repayment plan or something?

sourcrates

peanut_butter wrote: »

When she spoke to the bank before to ask for options, they didn't mention that.. their stance was, well, you can afford the interest even if it does leave you with 0 left each month, so tuff luck... :-\ - so how would I go about asking for that ? - or just leave the account to run over the overdraft with charges for several months then ask for a repayment plan or something?

This would be a last resort option, as you would be defaulting on the debt, as long as you are aware of that.

The process would involve writing to your bank telling them you are in financial difficulties, that you cannot afford the interest now charged on the OD, and asking them to freeze the account and not to add further interest or charges to it.

You would do a budget, showing what you can afford to pay towards the debt, and enclose a copy with your letter.

Is this your only debt or do you have others ?

National_Debtline

Hi peanut_butter


I'd recommend you start by completing a statement of affairs (SOA) and posting it back on the forum for more advice http://www.stoozing.com/calculator/soa.php. Make sure you format it for MSE.


Sometimes it seems like you can afford a debt, but you may be relying on credit through the month, so in reality the debt is are not affordable. If that is the case you can use the SOA to ask the bank to agree to freeze interest and accept a payment plan. As sourcrates mentions, you will require a new bank account and it is likely to result in a default.


We'll have a better understanding of your options once you post the SOA back on here. I hope all goes well.


Susie
@natdebtline

enthusiasticsaver

If you have cut back as far as you are able and cannot bring in any more income and your monthly repayment only just covers the overdraft charges then you cannot afford it. £5000 is a large overdraft and in recent months overdraft charges have increased considerably. My feeling if the bank will not help is that your wife open a clean bank account with no overdraft elsewhere and moves her salary and direct debits and bills to that. She can then advise her bank with the overdraft of the amount she can afford and ask them to freeze the interest. As sourcrates says it is defaulting but if she cannot get credit now I would imagine her credit rating is trashed anyway.

Dobbibill

I agree with the above posts about a SOA.
Sometimes it takes fresh eyes to see where you can make cut backs/savings.

If you would prefer not to default then if this account is used for your bills then maybe consider changing the date of these so the funds are in the account longer, thus reducing the daily cost of the overdraft.

You will also need to address why you are in/have an overdraft - if you don't do that, it may happen again.