An overdraft is an agreement between yourself and your bank that allows you to spend an agreed upon amount of money more than you currently have in your account.
Is An Overdraft A Debt?
In short, yes. An overdraft is a type of debt that’s linked to your bank account. It allows you to spend more money than you have available (up to an agreed limit). Many people don’t seem to believe that an overdraft is a kind of debt, but if your bank asks for you to repay it, you must do so. Overdrafts often have a high level of interest placed upon them and also there is often a small charge to use your overdraft, or a large charge if you haven’t pre-agreed to the overdraft with your bank.
An arranged (authorised) overdraft is when you have pre-arranged with your bank to allow you to take out money than is in your account. You’ll be charged interest on this, and occasionally a small charge.
An unarranged (unauthorised) overdraft is when you take out more money than is in your account without previously arranging this with your bank. You likely to have high interest and charges placed on this, which can add up very quickly.
Due to the high interest rates and charges that banks charge for going into an overdraft without prior consent, this can be an extremely dangerous and expensive way to borrow money. Especially as it’s one of possibly the only forms of debt that can genuinely happen without your knowledge. If you are struggling to repay your overdraft, talk to our advisers as soon as you can. Either complete the contact form or call us directly on 0800 029 3992 and we’ll gladly talk with you and explain your options to get yourself out of debt.
Bank Account Debts
On top of the overdraft, many banks charge you a monthly fee for certain accounts. If you have one of these make sure you are getting value for money. £12 per month might not sound a lot, but when you are struggling with an unauthorised overdraft and all of the charges and interest that comes with it, £144 a year can make the difference between coping and drowning in the debt.
Basic Bank Account
As the name suggests, these are basic bank accounts; no overdraft, no cheque book, most have cash cards and let you set up direct debits. Although basic, you are almost guaranteed to be able to open a basic account, no matter what your credit record is like.
A current account is like the big brother of the basic bank account; with it, you are likely to get a cheque book, debit card, and they will possibly ask if you want to set up an overdraft when you open your current account. This may come with a monthly fee. However, your credit history will be checked, and you may be refused a current account.
If you are worried about your overdraft debt levels, struggling to repay them, or getting caught in a loop of interest and charges, then talk to our friendly advisers. Over the years, our advisers have helped thousands of people with their debt problems; from large to small.