If you have an overdraft with your bank, it is a good idea to try to repay it as quickly as you can. This is because it is a very expensive way to borrow money and so you do not want to keep the debt for long. There are different ways that you can get the money to repay and it is worth considering which might suit you the best.
How an Overdraft Works
It is important to have an understanding of how an overdraft works. It is associated with a current account and if you have a good enough credit record, your account provider will allow you to borrow some money if you want to. They will have a limit on how much that is and this will vary between banks and account holders. The overdraft will be there for you to use whenever you wish and so once it is offered you do not have to negotiate it with them, unless you want to borrow more than they are offering. This can be good as the money is there when you need it, but it also makes it very easy to get into debt. What happens is that as soon as you spend more money than is available in your current account, you will start to borrow. This means that you will still be able to pay for the things that you want. However, as soon as you borrow, you will be charged interest. Once money goes into your current account, it will be used to repay the debt. This means that you will automatically repay it without having to worry about formal repayments. If you borrow more money than they have agreed to lend you, that will cost even more. It is well worth looking at the costs of this and then you will be able to compare it with other types of borrowing. It can be one of the most expensive ways of borrowing.
If you do need extra money, then it is good to look at the different options rather than just using the overdraft. You will have to apply for other types of loans, but it can be worth it as they will be cheaper in most cases. You will find that a personal loan, for example can be better, although you may take longer to repay it and have to borrow more than you need. It is good to calculate the costs of each type of loan and this will help you to see how they compare. It is also worth looking at repayments as well and how much you will be expected to repay and when and thinking about if you can afford it. It can be worth being careful when considering these though. Some people may take a loan and use the money but still spend so much that they go overdrawn. Then they will end up owing even more money. Think about whether this is something that you are likely to do. Be honest with yourself as it can be better to just stick with the more expensive overdraft than take a cheaper loan but risk having an expensive overdraft as well. You may even find that asking the bank to withdraw the overdraft could be worth it, but then if you do spend more than is in the account, you could end up in trouble.
Finding Ways to Repay / Avoid Overdrafts
If you do have an overdraft that you want to repay or avoid using then there are things that you can do to help. To start with, it is wise to keep a note of all of the money that you are spending to see where it is going. It can be good to track this or use a bank statement to help you because you could find that you are paying for things that you had forgotten about or that you do not use. Some people notice subscriptions, gym membership or other regular payments that are leaving their account and that they are not using. It is also good to more aware of the costs of things and you will be able to think about whether you really want to buy them. Comparing things like the cost of buying a coffee outside of the home and making one yourself or comparing the prices of different supermarkets, can help you to start getting into lower spending habits. You may not want to give up all of your luxuries, but seeing how much things costs and considering value for money, can be really good and may mean that you change some of your habits. You might want to change retailers or brands, cut down in certain areas and things like this which could provide you with more money to put towards paying off the overdraft.
It can also be good to be on the lookout for ways to make extra money. This will mean that you will more easily be able to repay the overdraft and will be less likely to go overdrawn in the future. There are lots of things you could try, like selling things you no longer want or use, doing some freelance work online or outside of the home, taking on some overtime and things like this. What opportunities there are for you will depend on what you are prepared to do, what you can do, how much time you have and what skills you have. Being open to ideas and always considering how you can save and make money should help you to be able to take advantage of opportunities and ideas as they come to you, so that you can repay the overdraft and hopefully avoid having one in the future.