Getting Out Of The Overdraft Trap For Good

Written by on September 12, 2012 in Money - No comments | Print this page

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When it comes to finance, very few products are as tempting as overdrafts. Many are either low interest or interest free, and it is not hard to obtain one that offers limits of up to £2000. Unfortunately, it is easy to become stuck in the cycle of dipping into your overdraft, and funding your lifestyle from it. If you should find yourself in that very predicament, you’ll quickly discover that getting out of it is anything but easy. But that certainly does not mean it is impossible.

Using Savings to Eliminate Overdrafts

While it is always a good idea to put some money on the side, savings soon become redundant for those who also have an overdraft. Not only do the majority of overdrafts accumulate interest, they also look ugly on credit files. Each pound borrowed shows clearly to other lenders, and will deter them from giving any further credit to you. Therefore, it can, under certain conditions, make sense to take money away from savings accounts that are growing with interest in a bid of eliminating overdrafts once and for all. You’ll always be able to re-build your savings account at a later stage – but you can really make a dent in your debts by putting them to good use right now.

Re-claim excessive overdraft fees

In 2010, it was announced that banks that charged extortionate overdraft fees would be legally obligated to return them to their customers. However, this is not something that will happen automatically. It is therefore down to those who have been unfairly charged to claim them back. Since the 2010 ruling, thousands of customers have written to their banks detailing the dates of the charges and claiming them back. For the majority of people, these fees will be taken off their overdraft balance. If you haven’t yet done so, make sure to investigate into the issue and make sure whether you, too, stand a chance of re-claiming some of these fees. Every bit helps and in some cases, the costs may actually add up to a sizable chunk.

Begin budgeting

For the majority of people, it is possible to budget enough to slowly chip away at an overdraft. Whether it is a weekly takeaway, or using too much petrol, there is always something that can be forgone in order to get out of an overdraft. For example, saving just £5 a week on something frivolous can reduce an overdraft by £250 a year. While that may not seem like a lot, it is progress. For many people it is possible to address excessive spending in multiple areas. If that same £5 were to be taken away from three areas, such as groceries, travel, and nights out, an overdraft could then be reduced by over £750 a year. Keeping track of any savings made will be easier through the use of online banking.

Get yourself a basic bank account

After you’ve eliminated your overdrafts, it would seem sensible to avoid them in the future. Of course, you can do this by, as mentioned above, budgeting more realistically and avoiding any unnecessary costs. And yet, there is a far more fool-proof method: By getting yourself a basic bank account online, you can make sure overdrafts are out of your life for good. The simple reason for this is that these accounts don’t offer overdraft facilities. Which mean you’ll never spend more than you have – and can make sure to gradually bring your finances into equilibrium again.

When it comes to getting out of the overdraft trap, a little effort can go a long way. Through a combination of limited spending and savvy financial decisions, it is possible to get out of the overdraft trap – and stay out of it forever.

This is a guest post.  This article was written by William Masters in association with eccount money (www.eccount.com). Liverpool-born William Masters has built a reputation as an expert on topics ranging from online banking and electronic finance systems to credit card safety. He currently lives in London.

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