You’ve probably heard all about the seemingly ‘blanket’ changes to overdrafts with banks and building societies here in the UK. 40% seems to be pretty much the new norm from March 2020. How do you avoid those overdraft price hikes and how can you work your way out of overdraft debt? How do you get debt free? Let’s take a look at what’s happening with UK overdrafts.
Why Do You Have Overdraft Debt?
This is probably the best question to kick things off with. You need to figure out why you are living in your overdraft and find a way out of doing that. It’s not going to be easy, or necessarily quick, but it’s the best way to get yourself back into the black. Even if you dip into your overdraft occasionally you’re going to find yourself facing these increased fees. Do you really want to be lumbered paying back 40% fees? It’s quite bonkers considering you can get a credit card with an APR of much less than that, even 0%!
You need to find a way to live within your means to pay off that debt. Once it’s paid off, continue to ‘pay off’ the debt but simply put that money away into a savings account. This is one way to boost your savings for the future.
Small Overdraft Debt
If your overdraft debt is a couple of hundred pounds, one easy way to avoid these price hikes is to go to First Direct. By switching to a First Direct current account, where you might be able to get a £250 interest free overdraft, you’ll avoid fees. Anything above that will be charged at their new rate of 39.9% interest from mid-March 2020. One additional benefit of this account though, is that they’ll pay you £100 to join at the moment. Meaning that if you have an overdraft debt of £300, you can essentially pay of £100 of it just by switching banks and then pay off the remaining £200, interest free! No more debt accumulating debt for you!
Larger Overdraft?
This one isn’t going to work for everyone but it might be worth a shot if you have a larger amount of overdraft debt. If you’ve never had a Nationwide Flex Account before you will be able to open one and you might get a larger credit limit than the First Direct option. This would come down to a credit check though. The Nationwide Flex Account gives you a 12 month 0% overdraft so if you have £1000 of overdraft debt and they give you a £1250 interest free limit, you’ll be able to join and only pay off what you owe. Another bonus is, if you know someone with Nationwide, you can potentially both receive £100 by them referring you. Additional payoff!
Money Cards Might Work
You might have heard of these as they seem to be well discussed. There are a couple of specialist cards offering 0% money transfers. This means that the card pays cash into your bank account so you can clear your overdraft debt. Instead you will owe the card at 0%. There will be a small one off charge, usually up to 4% of the transfer value. Some of these cards are available with 28 months of 0% meaning you can slowly but surely clear your debt without racking up any more.
So Why Are Things Changing?
This is all a reaction to the new rules which come into play in early April this year. From 6th April 2020, there will be a ban to fixed fees like daily, weekly and monthly overdraft usage charges. The new rules also stop banks and building societies from having different rates for arranged and unarranged overdrafts. The idea was to make things simpler for customers and make things more transparent. Yet to avoid losing out, the banks have pumped their percentages. Yes it’s clearer to see, but it’s also clear to see the uniformed price hikes.
Check Your Fees
It’s worth reiterating that this isn’t just one bank or building society changing their overdraft fees. It’s happening everywhere so don’t think that you’re exempt. RBS, Santander, Barclays and many more are all doing it. Overdraft fee hikes and changes which will affect the nation. Double check what it means for you and get on top of your overdraft debt.
