Many of us have an overdraft facility with our current account. This means that we have an allowance where we can spend more money than we have up to a certain threshold. This is usually already organised for us (although it is wise to check this) and means that whenever we need it we will be able to use it. It can be very convenient but is it wise to use it?

Costs

An overdraft can be a pretty costly way to borrow money. You will get charged interest on what you owe and probably a fee as well. Banks and building societies do vary a lot in how much they do charge though. It is certainly worth being aware of what the costs will be to you as you will then be able to judge whether you are prepared to pay them. It is worth remembering that the interest will probably be charged daily until the overdraft is cleared and so the entire cost will be determined by how long you take to repay it. However, there is likely to be a charge which could be monthly, so if you pay it off quickly or slowly during the course of that month it will make no difference to that charge but if you keep it outstanding for too long, then you will be charged again.

Repaying

Once you have an overdraft it is repaid in a unique way compared to other debt. As soon as money is put into that particular account, it will be used to repay the debt. This means that there are no regular repayments or things like that but it will just repay automatically. This means that some people will avoid putting money in those accounts as it gets swallowed up and they cannot spend it. However, this will mean that they will continue to be charged interest and fees on the debt. It is therefore much better to try to repay it as quickly as you can so that you can avoid this. You may need to think of a way to find some extra money if you go into debt and are not due to be paid for a while. This can be tricky, but there might be ways that you can earn a bit more. You might be able to take on some temporary work, do some freelance work or other jobs to bring in a bit extra It might even be worth considering taking out a different type of loan to pay off the overdraft which will be cheaper.

Alternatives

As overdraft are expensive and get repaid automatically, they may not be the best way of borrowing for you. It is worth thinking about whether you might be better off using a loan where you have a lower interest rate and can pay it off in smaller instalments across a longer time period. Not only could this be easier to manage and cheaper, but it could make you feel more in control of your finances. Of course, all borrowing should be thought about hard and you should decide whether it is even necessary to borrow at all or whether you will be better off saving up for the item or being more frugal with your spending. As long as you are aware of the costs of the loan and how you are expected to repay it, then you are in a good position to decide whether it is right for you. Accidently going overdrawn and then having to cope with the cost and repaying it can be difficult and therefore it is wise to make sure that you are always aware of what you are spending and how much money you have, so that this does not happen.

Therefore, it can be worth deciding carefully whether an overdraft is right for you. Whether it is wise to go overdrawn is really a very personal decision and it will be hard to know what might be the best thing to do. However, if you research all of your different options then this should help you to be able to come up with the best possible solution for you. As we are all different and our financial situations differ then it can be really difficult to come up with an answer as to whether overdrafts are right for everyone or not right for everyone. It is very dependent on that person’s situation. So, it will be up to you to decide whether you think that it will be a good idea for you. You will need to think about all of your options and cost it out and then you will be able to choose whether you think it is worthwhile, whether there is a better loan option or whether you are better off not borrowing at all.

Many of us have credit card debt and it can become a worry if we feel that it is building up and we are not doing enough to repay it. It can feel like an uphill battle, but there are ways that you can make repaying it easier. It is worth having a step by step or methodical approach so that you can follow it through.

• Stop using your card – the best way to start is to stop using your credit card completely. Then you will not be able to add to the debt that has already accumulated. It is not easy to do this but if you put it somewhere where it is not easily accessible that could help. You may feel that if you are making online purchases then it is not safe to not use your card. This is completely understandable but try hard to avoid making those purchases at all and then you will have no reason to use the card. If you do end up using it, do not use it as an excuse to use it a lot more. Just put it back away and try to not use it and also do not punish yourself for slipping up just once, just learn from it and try to avoid it in the future.
• Ensure you repay the minimum by direct debit – All credit card users are required to repay the minimum each month. This will cover the costs of the card and not doing this will result in even bigger fees and charges. Therefore, make sure that you are always able to do this. The best way is to make sure that you set up a direct debit for the amount and have it leaving your account just after you get paid. If you do not have one set up at the moment then contact your card issuer to arrange it. If the date the money goes out is not ideal then contact them. It is very likely that they will be happy to change it for you.
• Pay a little more than the minimum – Once you are on track with not using the card and paying the minimum it is worth thinking about whether you can pay off a bit extra. It might eb that you will only be able to spare a few pounds extra, but anything extra will help to repay the card more quickly. It can be best to work out how much you can afford by looking back over past bank statements and seeing whether you tend to have money left over each month that you could be using to pay off the card. Even if it is just a small bit then it will start to add up and make a difference. Then you can adjust your direct debit so that it is a bit higher. It can be confusing form the statements as it may look like you can only either repay the full balance or the minimum, but it is acceptable to set up a direct debit for any amount you wish as long as it is the minimum amount or more.
• Pay off chunks when you can afford it – you might also find that some months you are better off than others. This might be because you have less bills, have a bit more money coming in or something else. If you have a bit of spare money then use it to pay off a chunk of the credit card. Many people do not realise that you can pay off chunks of the card whenever you like. You do not have to just repay at the set time in the month when you have agreed to.
• Cut spending elsewhere to free up money – If you want to make a more significant impact on your credit card balance then you will need to reduce the amount that you are spending elsewhere so that you free up extra money that you can use to pay off more of the debt. This can be tricky but it is worth thinking hard about everything that you buy and considering whether you really need it right now. For example, when you are buying things always question whether you need it or whether you can wait until the card is repaid. Also think about whether you can pay less for the things that you are buying. Compare prices on everything that you buy and you may be able to spend less quite easily and use that money to pay off the debt.

As you pay off more and more of the debt your interest charges will go down. You will be able to use that money to repay the debt more quickly. This means that although it might seem very tricky to start with, you will find that it will get easier and easier as you whittle away more and more debt.