What is...an overdraft?
Many people have heard of an overdraft as it is a product your bank will offer. However, when in the need of borrowing cash using an overdraft is not always the answer!
An overdraft is a way of borrowing money from your bank usually with a fee depending on how much you borrow. It is important to know that an overdraft is a loan, and it will need to be paid back. If you find yourself in need to borrow money you should know there may be cheaper alternatives available. You should research all the options available and find out what is the cheapest way for you to borrow.
There are two types of overdraft: Authorised and Unauthorised.
An authorised overdraft is when you and the bank have agreed limits which you can borrow up to, however these usually come with fees and/or interest charges.
An unauthorised overdraft is when you have spent more money than is in your account, and you had not previously agreed an overdraft facility. The fees for unauthorised overdrafts are often based on daily fees as well as incurring interest.
So, if you are often finding yourself in your overdraft, what are your options?
One main tip is to keep track of your money. Downloading your banking app will help you know your bank balance with a few simple taps of your fingers! This will help you make smarter financial decisions moving forward.
Another tip regarding managing this debt is to switch bank accounts to one offering a lower rate of interest or even an interest free overdraft. But it is important to make sure you are not moving to a bank who charges a higher interest rate.
Depending on the size of the overdraft and how much you can pay back each month, it may be worth looking at a loan or credit card to see if these can be a cheaper method of borrowing in the long run. We would recommend conducting your own research to find which option suits you best, however, remember that credit cards can offer temptation, and you will need to be responsible once getting one.
The main advice we can give is to budget properly and plan!
Make sure you are tucking away a certain amount each month to prepare for any upcoming events, or even regular costs such as Christmas, Car repairs, or vet bills.
Only borrow money if you MUST, as it will cost more in the future.
Contact us for a FREE budget planner to help you see where your money leaks are. (A money leak is simply any amount of money that you spend and are unable to identify what you spent that money on at the end of the month).
If there is any more information you would like or some help getting yourself in a better position financially, please do not hesitate to contact us as we are always happy to help! Call us on 01323 436680