
It’s really simple. In particular, while using a contactless payment method.
Overdraft fees are on the rise, and experts warn that they might cost twice as much as regular credit card interest. Overdraft fees are over 40%, whereas credit card fees are less than 20%.
Not helpful during a time of rising living expenses.
The question then becomes what you ought to do about the overdraft. Is it a good idea to move your balance? Would it be wise to spend your money to settle it? Or perhaps you need to change your bank.
Here is the consensus among the specialists.
Should I transfer my overdraft to a credit card?
Like most money-saving tips, the first port of call is making a budget.
‘The first step is to create a budget and make an allowance for a reasonable amount of one -off expenses, then stick to it,’ says Gary Hemming, Commercial Lending Director at ABC Finance.
‘Next, calculate how much your overdraft is costing you each month, and compare it to alternative products, such as a credit cards with 0% interest for a period, and personal loans.’
Paying off your balance before the interest-free period ends is essential if you decide to make the transition to a credit card with a 0% APR (or switch to another zero-interest card at the end of the term).
Should I use my savings to pay off my overdraft?
Yes, says money blogger Laura Turner, founder of Thrifty Londoner.
‘Overdraft interest rates can often be very high, so it’s best to clear them as soon as you can,’ says Laura. ‘If you have any savings, use them to pay it off in the first instance.’
‘If you have no other choice but to pay off your overdraft, create a budget to do so as quickly as you can.’
Laura recommends apps such as Moneyhub and Money Dashboard to help you stay on track.
Will switching bank accounts help me pay off my overdraft?
It’s definitely worth looking at, according to blogger Andy Webb from Be Clever With Your Cash.
‘With most overdrafts charging 40% interest, it’s one of the most expensive ways to borrow money and best avoided,’ says Andy.
‘If you open a First Direct or HSBC current account you can get a £500 interest free buffer for a year.’
He also recommends considering the Nationwide FlexDirect current account which offers 0% interest for 12 months.
Thrifty Londoner Laura also suggests checking out these two accounts – if you’re confident you can clear your overdraft once the year is up, or you’ll be subject to high interest rates again.
‘Remember, once you’ve paid off your overdraft, close the overdraft facility with your bank,’ warns Laura. ‘This is so you’re not tempted to dip into it again.’