Best way to clear overdraft - sorry if this seems like a daft question!

mrsspendalot

Ok my target by the end of the year is to clear our overdraft. We have a £1100 overdraft limit, and as of today we are £606.22 overdrawn. The overdraft is a debt that we have never included in our debt total because we have basically lived in it for the past 4 years, so have seen it is as our money. I am rubbish with numbers and overdraft repayments always baffle me because they are in negative numbers, so forgive me if this sounds like a really dumb question.

I just want some advice on the best way to clear it. Do I reduce the limit gradually each week or wait until my account is in credit and then remove it completely?

shoeaddict

Hi there.

It's difficult to advise you exactly what you should do, as I don't know your other debt situation.

This is how I handled my overdraft (£1200). I viewed it in exactly the same way as you; had been living in it for years, couldn't see it as proper 'debt' as I was always in negative numbers! And if I'd waited until I was in credit and got rid of it, I would have had about £2.50 to last a whole month (to pay the mortgage/food etc etc etc!) :rotfl:

I knew I needed to see this as a proper debt, and pay it off. So I transferred the whole amount to a Virgin credit card at 0% for 13 months, and gave myself that time to pay it off. As you can see from my sig, I've found this method works very well (for me) and will definitely make my target. Be seperating this debt away from my day to day account, it's been much easier for me. :T

I also transferred the balance from another credit card onto the Virgin c/c, to pay this off at 0%.

But - and this is the big but - if you go with this method you must make sure that a)you get a good 0% deal on a c/c b)you DO NOT use the c/c (or any other c/cards for purchases and c)you cancel your overdraft facility and work out a good budget so you can pay off the debt.

Please let me stress, this way might not work for you - I know some people put some money aside each month in a seperate account until they have enough to pay off the o/d. And there are other ways, as I'm sure some much more expert people than me will be along to tell you. Take time to consider the right option for you, and your lifestyle.

This way has worked very well for me, though - and, by keeping my debt and my current account seperate - it's also taught me to budget and manage my money much better! After years of being in negative money in my account, it's a fantastic feeling to be in the black - and I am damn sure I am going to keep it that way! And when the c/c is paid off, it's being cancelled for good!

Hope this helps

tigerfeet2006

Another way is to open a basic account with no O/D at another bank and have a DD set up to pay off a little of your OD each month.

Again this means you will have to have your budget sorted out so you won't overspend each month.

Or you could ask your bank to reduce your OD by £50 a month so you reduce it slowly while getting your budget under control. Maybe leave yourself with a £100 at the end as a buffer.

Shineyhappy

I am reducing my OD (2.5k to 1.5 k so far) by just careful budgeting and trying to spend as little as possible. This is working for me and it also means that if anything unexpected happens I dont have to put it on a cc or go overdrawn and get bank charges

OGB03

Hello

As others have said, there are a variety of things you can do to help you reach your goal of clearing your overdraft.

If you have an overdraft of £1100, this basically means that the bank has given you the option to spend up to £1100 of their money, in addition to your own. Your post suggests that you rely quite heavily on your overdraft and after 4 years you don't count it as being a debt, rather your own money. It really isn't. If you wanted to close down your account with them, you would have to give them back their £1100 first.

If you credit your account with £1100 per month - you can spend £1100 per month. If you credit your account with £1100 per month and you have an £1100 overdraft - you can spend up to £2200 per month!

If your balance shows a negative number, you have none of your own money left and are spending the banks money.

I'd be worried about what you will use if you remove the cushion of the £1100 completely.

Do you usually max out your overdraft, ie, every/most months you're about £1000/£1100 overdrawn?? If so, if you clear your overdraft completely, what will you do about the £1100 shortfall?

Perhaps you could contact your bank or building society and explain that you would like to clear your overdraft, however, you are not in a position to do this completely at once. You could ask for a reducing overdraft balance on a monthly basis by an amount that you can afford. This way, you will be able to adjust to having less of the banks money to spend gradually each month.

For example, a reducing balance of £20 per month:

December 28th 2007: -£20 = Overdraft £1080
January 28th 2008: -£20 = Overdraft £1060
February 28th 2008: -£20 = Overdraft £1040 etc etc

The bank may put you onto this 'arrangement' for a certain period of time, after which it will be reviewed and continued, with the balance being reduced by more or less, dependant on what you can afford.

If you have a particular date that you would like to clear your balance by, then you can work out how much it would have to be reduced by on a monthly basis to reach your target. Did you mean that you wanted to completely clear the overdraft by the end of this year - 2007?

If you wanted to clear your overdraft completely by November 28th 2008 - 12 months, and your overdraft is currently £1100, then your arrangement would look something like this:

December 28th 2007: -£92 = Overdraft £1008
January 28th 2008: -£92 = Overdraft £916
February 28th 2008: -£92 = Overdraft £824 etc etc

Overdrafts are not necessarily a bad thing, however, if you are reliant on it, and include it as your own money or 'income' on a regular basis, you are absolutely definitely spending more than you earn/you can afford.

I really hope this helps.

steve_r123

I've done mine like shoeaddict has, put it on a Virgin 0% credit card, then cancelled the overdraft.

Much more manageable for me, and I can see the amount going down each month I pay some off.

Obviously this is only an option if you have a decent credit score in the first place

mrsspendalot

OK, thanks for all the replies.

We used to max out the overdraft regularly because we were spending beyond our means. However, we now have a tight budget and this has enabled us to reduce our debts by almost half since March when we joined the site. However, because we have concentrated on our other debts, we have never given much thought to the overdraft and have continued to use it, seeing it as our own money.

On our budget we have money left over each month which has been used for making overpayments on our credit cards. All our cards were cleared, leaving just the overdraft and 2 old debts which we are now saving to offer full and final settlements to. We never go more than £900 overdrawn out of our £1100 limit. This month we have £333.63 spare after all our bills have been paid. Next month we have about the same spare after paying everything. So we have the money to repay it, it is just deciding on the best way to repay it.

I think it is just the size of the overdraft that is the problem

mrsspendalot

We don't have a decent credit rating at the moment so our chances of getting a 0% deal are about zero. Next year when our defaults have finally dropped off the credit report we would have more of a chance, but I want it gone by then anyway.

Shineyhappy

I think someone mentioned that one of the banks credit checks you every time you reduce your limit so if you are planing on reducing it on a monthly basis I would check with the bank to see if there is a credit check involved first.

Fortheloveofmoney

What's the APR on the OD?

My OD is £1654 and I'm saving the amount in a high interest saving account in order to pay it off in full. I'm only doing it this way as the OD is 0% until April 08. I will have enough money saved by 10th December but plan on leaving it in the high interest account until April.

Maybe the answer is to include it in your total debt figures and pay it back in the same way you have paid your cards.

tyllwyd

You say that you never go more than £900 overdrawn - so next month, why not set yourself the target of not going more than £800 overdrawn, then £700 etc. Personally, I can't see the point of getting the bank involved and asking to reduce your limit - why risk getting bank charges?