Martin Lewis' website has issued a warning to anyone using their overdraft - calling it a “danger debt” due to the hefty fees charged.
An overdraft lets you borrow money through your current account by taking out more money than you have in the account.
MoneySavingExpert.com explained how “almost every bank” now charges rates of 40% - far higher than typical credit cards.
But there are ways to cut your overdraft costs and save money.
In the latest weekly MSE newsletter, the team recommended checking if you’re able to switch to a 0% overdraft.
They warned there is no guarantee your new bank will accept you, or match your existing overdraft limit - but said it is worth exploring your options.
First of all, you should use an overdraft eligibility checker before applying to see if you’re likely to be accepted.
Nationwide offers some new customers a 0% overdraft of up to £1,500 through its FlexDirect account - but the 0% rate only applies for one year, so you’ll need to clear what you owe during that time.
Another way to clear your overdraft is through a 0% money transfer.
This would involve taking out a specialist money transfer card, and then you get the money paid directly into your current account to pay off your overdraft.
If you do go for this option, keep in mind you will need to make sure the credit card is paid off during the 0% period.
At the moment, the longest deal from MBNA offers 0% for 14 months for a 3.49% fee of the amount you’re transferring.
Once you’ve used the money to pay your overdraft off, you should ask your bank to close your overdraft.
There are two different types of overdrafts available through bank accounts.
An authorised overdraft is where you've agreed a limit with your bank and can spend money up to that threshold.
An unauthorised overdrafts is where you've gone over your agreed limit on your arranged overdraft, or if you've simply spent more than you have in your bank account.
If you're really struggling, always speak to your bank to see what help and support they can offer you.
