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Cost of living

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Original poster

Is it bad to be in your overdraft?

15 replies

YonilyDevotedToYou · 29/08/2013 00:43

I have a £1200 overdraft and am almost always at the bottom of it at the end of the month. Is this a really bad thing and does it affect your credit rating? Sorry if this is a stupid question but I genuinely have no idea.

OP posts:

WafflyVersatile · 29/08/2013 01:11

It's quite possibly good for your credit rating but it's not really 'good' is it? You don't need me to tell you that.

Try to pay it back if you can. Draw yourself up a budget.

joanofarchitrave · 29/08/2013 01:42

It's bad because it's costing you a fortune. Try and ring up and get your overdraft reduced every time you get money in, even if it's only by £10 a month (preferably £20 or £50 though). Banks can make it quite hard for you to do this because they make their profits from your overdraft, but if you can reduce it, do.

Mum2Fergus · 29/08/2013 09:42

Not bad per say...but if you're relying on it on a monthly basis then it's time to review your finances. Do a proper budget that incorporates a plan to repay it, even if only a few £s a month. It must be costing you money too which can't help. Something folk don't realise with ODs too is that your Bank can withdraw it at any time...if that was to happen, how would you cope?

prettymess · 29/08/2013 11:35

A bank manager once told me that most people never get out of their overdraft. We were £1500 in at the time and I talked about trying to pay off a little each month. Nice to discourage me like that!

We are now debt free but only because we sold our house.

Original poster

YonilyDevotedToYou · 29/08/2013 12:04

Thanks everyone. Unfortunately we are going to be very short this year as we are supporting my DSD in her first year at university, but I can try to claw back £20 or maybe £40 a month out of the overdraft, I suppose.

OP posts:

Absy · 29/08/2013 12:10

Definitely try that, and make sure that you reduce your overdraft by that amount (or in one go, say by £100 when you reach it) rather than leaving it. What I mean is, if you have a £1,200 overdraft and this month you budget £40 to pay it off, reduce it to £1,160 so you that you can't spend it. Voice of bitter experience - it's so easy to go "I'll just dip into that paid off bit" and then you're back at square one.

Pootles2010 · 29/08/2013 12:23

I think its good if you can -we're trying to at the moment, but its all uphill.

I know we pay about £15 a month interest, which soon adds up over the course of a year. Also, its nice to have your overdraft to fall back on - if you're in the black, its effectively a safety net, iyswim.

Bowlersarm · 29/08/2013 12:28

At the beginning got the credit crunch Banks were sending out letters to their customers informing them that their overdraft facility would be stopped. Just like that. I think Banks have relaxed a bit over the past few years, but the fact they could do this, if they like, would worry me.

I would try and get out of it if I were you. It would put you in a much more secure place.

prettymess · 29/08/2013 12:30

I would get your overdraft limit changed as you go along too. To £1000, £750 and so on to avoid you dipping back in.

prettymess · 29/08/2013 12:31

Sorry, just mirroring Absy!

Fancies40Winks · 29/08/2013 12:43

What is your credit rating like? If you don't know you can check for free on creditexpert or the like. If it's in any way decent you would be far better off transferring the debt to a 0% credit card (barclaycard are doing 0% for 2 years I think). Then that £50 would be paying off the balance not balance plus interest, and there would be no worries about the overdraft facility being removed (which was my big fear when I lived in mine.)

Original poster

YonilyDevotedToYou · 29/08/2013 13:44

Thanks for all the advice ladies. I will look into the 0% credit card thing.

OP posts:

cozietoesie · 29/08/2013 17:08

And check what you're actually paying for that overdraft. I know that my brother's bank changed the rules on him a bit back. (I don't think he's truly realized yet.)

lougle · 01/09/2013 20:57

It sounds like you could do with joining us on the You Need A Budget (YNAB) thread

If you're £1200 into your overdraft each month, that means that at some point you've spent £1200 more than you've earned.

The trouble with overdrafts is that they seem like 'your' money. Before DH and I had a radical change to our circumstances (bankruptcy), every single time our OD limit went up, you could guarantee that we would be at limit each month. That's because our mindset was that our available funds were income+OD. Madness.

We're 6½ years post-bankruptcy and have never been more than £2-3 overdrawn, 2-3 times in that time. Now, we get a cold sweat if our balance goes below a certain amount.

YNAB is a budgeting method which puts your income into 'envelopes' so that you are budgeting every £1. That way, you can budget an amount towards your overdraft each month, meaning that you'll gradually get to a point where you aren't in OD.

Trigglesx · 02/09/2013 09:15

I have been regularly in my overdraft for quite a while. I've recently had to really push myself, and now I'm about £20 into it, which will be gone tomorrow. My goal this month is to remain completely out of the overdraft for the remainder of the month, and from tomorrow on. It means I will have to be more alert to spending habits and not use it as a catchall for little expenses. It's just laziness on my part, IMO, letting it go in there regularly. Money can be tight, but I have been lax about organising my expenses. Obviously others have more pressing reasons to be in their overdraft.

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