There are thousands of people in Britain in 2019 who will know how Mr D feels when he asked:
We moved into our own place 18 months ago. I have have had to ask for my overdraft limit to be increased several times when I can’t afford the bills. It is now at £2,000 and I am paying more than £60 a month in fees.
I am trying to reduce it but really struggling as I am the only one working while my partner is looking after our baby. I also have a car loan because I needed it for work. I can’t keep living like this, it is making my partner and me very stressed
What can we do? We don’t want more debt but would another credit card be cheaper?
Even with great determination and demon budgeting, a £2,000 overdraft is a big challenge to clear. But does Mt D have bigger problems than just the overdraft?
Is the overdraft the real problem?
Mr D asked for higher overdraft limits when he had bills that he couldn’t manage in a few months. Now if that was just once, then getting rid of the resulting large overdraft probably is the main thing to focus on. Mr D’s budget will look a lot healthier when he isn’t paying those overdraft fees!
But Mr D says this happened several times. So it seems likely that he may have a bigger problem in that his income isn’t big enough for his expenses. In 2019, high bills are very often the problem that causes people to run up overdrafts or other sorts of high-cost credit such as catalogue debts, doorstep loans, Brighthouse “pay weekly” debts or Provident.
It sounds as though he has a car loan and at least one credit card. Is he also paying debts that are his partner’s? Are there other debts and are they behind with any essential bills such as rent, council tax or gas/electricity?
Unless Mr D is very sure that his only problem is the overdraft, I suggest he or his partner goes to a local advice agency such as Citizens Advice. They can help him look at the full situation.
Yes, it’s just the overdraft
I’ve looked before at the general options for trying to clear an overdraft.
Mr D asked if it would be cheaper to get a credit card:
- with a good credit rating he may be able to get a 0% “money transfer” card, which would be much cheaper. He could then ask for his overdraft limit to be reduced down to a more manageable couple of hundred and aim not to use it. And if he can pay more than the minimum monthly payment to the new card, the debt really starts getting cleared.
- the option of getting a new credit card he will be paying interest on and aiming to put his everyday spending onto instead of using his debit card can turn into a big trap. It’s very easy to end up with a large credit card bill and still have a lot of the overdraft left.
A better option with a poor credit rating is to open a new basic bank account with no overdraft. Mr D can move all his banking over to that account and ask his current bank for an arrangement to repay the overdraft on lower fees.
Even if his bank won’t help in this way, he may find it easier to set up a standing order from his new account to pay a bit more than the fees to his old account, than his current problem of trying to pay off the overdraft while still using it.
In June 2019 it was announced that the banks have to make their overdraft charges simpler and help customers in difficulties. But that isn’t going to happen for a while, and Mr D would do better to take action now.