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How to Get Out of Your Overdraft

Are you living in your overdraft? Find out how to get out of it and the ways that Consolidation Express can help.

If you are trying to get out of your overdraft, Consolidation Express recommends that you:

When you set up a new bank account you may be asked if you would like to apply for an overdraft, which can make short-term borrowing much simpler for those who qualify. This is a good option for those who just need a small amount of credit to see them through to payday. However, if you are unable to clear your overdraft in full every month, interest and charges may be applied to your account, which could make getting out of an overdraft a difficult task.

Reduce your expenses

Reducing your outgoings is a good starting point if you are looking to pay off your overdraft.

A common reason that people dip into their overdraft every month is that their expenses outweigh their income, and if that’s you, the first thing you should do is look at calculating a budget.

If you’re not sure where all your money is going, look through your bank statements. Are there any unnecessary purchases or things you could cut back on?

No one likes to limit themselves on their spending, but cutting back on socialising or days out temporarily could help you to pay off your overdraft. Then you’re free to start doing those things again in the future.

Top tip:

List your essential payments like rent and mortgages, household bills, and debt repayments. Then list your other monthly payments, such as subscriptions, memberships, and frequent meals out or takeaways. From the second list, you can decide which payments you can cancel, cut, or reduce.

Set up a repayment plan

Once you’ve cut down on non-essentials, you can look at making a realistic repayment plan to pay off your overdraft.

First of all, work out how much your overdraft costs you each month. It’s important to know which kind of overdraft you have, i.e., an arranged or unarranged overdraft, in addition to the interest and charges specific to your overdraft, as this can differ between banks & lenders. The first thing you should try to determine is which overdraft type you have – is it an arranged overdraft or an unarranged overdraft?

Arranged overdraft vs unarranged overdraft:

  • An arranged overdraft is when you've arranged the overdraft with your bank, and they've set you an overdraft limit.
  • An unarranged overdraft is when you haven't arranged an overdraft with your bank. You'll still be able to spend more money than you have in your bank account, but they will usually charge you more than an arranged overdraft to use it.

From here, you can work out how much it would cost to pay off your overdraft and if it’s realistically possible without taking out a personal loan or looking at other borrowing options.

If you can afford to, try putting a little money aside each month to repay the overdraft debt. We recommend opening a new bank account with no overdraft facility to have a separate account from your one with the overdraft. You could then use the new account for day-to-day banking and put a little money into your old account every month to repay the overdraft debt over time. However, you need to ensure that you have enough money in your overdraft account to cover the interest and fees that your bank may charge on a monthly basis. If you do pay money into the account each month, it is a good idea to contact your bank and ask them to reduce the overdraft by that amount so you are not tempted to dip into the overdraft again.

Look at other borrowing options

If your overdraft is costing you too much money, it might be worth looking at other borrowing options to pay off your overdraft.

It might sound counter-productive to borrow money to pay back the money to your overdraft, but opening a new credit line could help you to avoid high-interest payments. If you do decide to do this to pay off your overdraft, it’s important that you contact your bank as soon as you have cleared it and ask them to remove your overdraft facility. Otherwise, you may be tempted to use your overdraft again, and you will then have to pay for both the overdraft and the new credit account.

Money transfer credit card

A money transfer card may be a good option if you are looking to repay an overdraft that has high-interest charges. A money transfer credit card allows you to transfer money into your current account to repay your overdraft debt.

Money transfer credit cards usually come with an interest-free period spanning 9-16 months; however, this depends on the lender and your credit status. This means you won’t be charged interest for those months, although most lenders do charge a one-off fee for transferring money from the card. If you already have a credit card, sometimes lenders offer 0% deals to their existing customers, and you should be able to see this on your online account or app. If your overdraft debt is costing you money in interest rates, then it may be a cheaper option if you’re able to repay the overdraft debt in full in the number of interest-free months you have.

The amount you can transfer will depend on your credit score and what the credit card provider approves. How much interest you pay after the interest-free period will also depend on the credit card provider, so make sure you check before agreeing to anything.

Top tip:

To keep on top of payments, make sure you have direct debits set up to meet your minimum monthly repayment for your overdraft – that way, you’ll never default or make a late payment. Late payments and defaults will go onto your credit report, which will make it much harder for you to borrow money in the future.

Interest-free overdraft

Some banks offer interest-free overdrafts; in this case, it might be worth switching bank accounts.

Before you switch banks, check the following:

  • the overdraft interest rate
  • the overdraft limit

Even if you can’t find an interest-free overdraft, you might be able to find a cheaper overdraft with lower overdraft charges. This means it would be easier to pay off your overdraft with this new account as fewer fees are likely to accumulate. Again, if you do this, make sure you remove your overdraft facility from your old account once you have cleared it to stop the temptation of dipping into it again in the future.

Consolidation Loans

If you’re dealing with other debts besides your overdraft debt, you might want to consider a consolidation loan. A debt consolidation loan can help you to repay several unsecured debts all in one go so that you only have one monthly repayment to make.

This means one interest rate, one creditor, and only one payment coming out of your bank account each month to cover your debts.

Fill in our online application to see if you qualify.

Do I Qualify?

Speak to someone

If you’re dealing with stress and money worries because of your overdraft, it’s best to speak to someone like a financial adviser or even just family or friends.

It’s not always easy to speak about money worries, but talking about them can help lessen stress. Your friends or family might have good ideas on how to stick to a budget but still enjoy yourself. They may also have some great money-saving tips. It could surprise you, even if it looks like your peers are doing better than you financially; they could also be struggling or have had money problems in the past.

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To recap:

  • Reducing your expenses and setting up a repayment plan can be a good option to get out of your overdraft.
  • If this is not possible for you, there are also options to take out another line of credit with lower interest rates to pay off an overdraft.
  • If you’re dealing with other debts along with your overdraft, a Debt Consolidation Loan may be a good option for you.
  • If you’re struggling, don’t be afraid to reach out for help!
Consolidate Now
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APRs from 5.8% to 89.9%

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Unsecured Loan Representative 69.9% APR

Borrowing £7,500 over 36 months, repaying £502 per month, total repayable £18,083. Total cost of credit £10,583. Interest rate 69.9% (variable). The lenders on our panel offer loans for 12-60 months, with rates from 5.8% APR to 89.9% APR. The Representative Example is based on all loans paid out by lenders between 19th Apr 2022 and 23rd Dec 2022.

Secured Representative 11.7% APR

If you choose to add fees to the loan: Assumed borrowing of £25,000 over 120 months, plus a broker fee of £2,500 and a lender fee of £250 would result in monthly repayments of £345.55, the borrowing rate is 8.6% (variable), the APRC is 11.7% (variable), total charge for credit £16,466.00 and the total amount payable £41,466.00. You can opt to pay the lender and/or broker fees upfront, your adviser will discuss these options with you.

Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any debt secured on it. All rates vary subject to loan amount, loan type and status. Repaying your debt over a longer period of time may increase the amount you pay.

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