Top Tips For Escaping Your Overdraft
Find A Good App
As with most things in life, when it comes to looking after your debt, there’s an app for that. “Downloading a money management app will help you better identify where savings can be made,” says Samantha Seaton, CEO of Moneyhub. “An app will send you personalised financial ‘nudges’ based on your spending behaviour and flag when you can put money to the side to save. Some apps can even give permission to make an automatic sweep from a savings account into a current account to avoid unnecessary overdraft fees. You can also be notified if you could be getting a better deal by switching from your current energy, bank or other provider.”
While it’s best to prioritise paying off your debts over saving, there are some great apps that’ll help you save without having to put away large chunks of money. “If you’re not very good at saving money each month, an easy way to do so is to set up the function, now available at many banks, which rounds up the cost of each payment and automatically puts the difference into a savings pot for you,” says Samantha. “While saving the occasional 30p extra doesn’t sound like much on its own, every little bit does help and it can quickly accumulate.” Apps like Monzo and Moneybox will round up your spending to the nearest pound and put that difference into a savings account (with Moneybox investing it into a stocks and shares ISA). Once they’ve started to add up, you can put those savings towards paying off your overdraft.
Learn From Your Mistakes
Once you’ve got out of your overdraft, you’ll no doubt want to ensure that you never go into it again. On most accounts you can, of course, simply remove the overdraft from your account, but if you like the safety net, business and mindset coach Caroline Britton has some tips for ensuring you stay out of debt. “First, have a non-negotiable figure in your head that your overdraft will never go below. Then, make sure you check your bank account every day and review your spending monthly, so you know exactly what is coming out and when. A spreadsheet will help you keep track of this, but it’s also a good idea to have a banking app on your phone that you can check routinely in the mornings.”
Caroline also suggests changing the way you think about money: “Treat it with care, nurture it and be grateful for it. Being good with your money starts with you paying attention to it and using it with the right intention.”
Set Up A Text Alert
One of the best things you can do to ensure you don’t slip into your overdraft is to set up text reminders with your bank. You will then be sent a text if you are getting to close to going into your overdraft. Or if you have gone in it, most banks will notify you to replace the funds within a certain amount of time in order to avoid a charge.
Watch Out For The Unexpected Costs
There are always hidden costs that come with borrowing money from the bank, so you should bear that in mind when taking out your overdraft. Look out for such costs as overdraft fees: could you move to a different bank that won’t charge you and, even better, give you an enrolment bonus? Also ask your bank directly to explain its fees and interest rates, and don’t leave until you understand exactly what they mean.
Keep Your Emotions In Check
It’s so easy to feel emotional about money. “When we feel stressed about money, we tend to start speaking to ourselves negatively, which does nothing to get us out of the situation,” says Caroline. “So, the first step is acceptance: accept that you are in your overdraft and then make a commitment to looking at taking practical steps to getting out of it rather than wallowing and becoming self-critical. You are far more likely to take inspired action if your mindset is in the right place.”
Find Support
Money issues are notoriously taxing on your mental health, so seek out support if you’re feeling overwhelmed. “Whether it’s family or friends, your bank, or other support organisations such as StepChange, it is important you don’t struggle on your own,” says Rhiannon Philps, finance editor at KnowYourMoney.co.uk. “Debt is a widespread problem, so there are numerous resources you can draw on to help you tackle your overdraft. You won’t be the only one in your situation, so don’t be nervous about reaching out for support and advice.”
Try Saving With Friends
Like many things, saving is better together, which is why Lucy Mullins, co-founder of Stepladder, a new platform that helps people get on the property ladder faster, suggests you try and reach your savings goals with your friends. “There are a number of collaborative finance apps now available which help you track, compete (if you want to!) and share your savings goals. Research shows that saving with others can increase your chance of success by 300%. So call up your friends and set up a savings squad to support and motivate you on the journey out of your overdraft.”
Reassess Your Position
If you are constantly in your overdraft and can’t work out how to get out of it, you need to block out a period of time where you can sit quietly and objectively look at where you might be overspending. “I recommend doing this in an Excel spreadsheet,” says Caroline. “What is coming into your account and what is going out? Where are you overspending? Why? If you can tap into the emotions behind your attitude to money, you can make real, lasting change.”
Learn To Prioritise
After you’ve figured out what your finances are going towards, you can look at how to change them. “Ask yourself: What are the main outgoings you have that are non-negotiable? How much does this come to and how much is left? What are you doing with the money that is left over after your key bills are paid? Compare what is most important to you with what you spend your money on” Caroline suggests. “For instance, I would much rather go out for dinner with friends than spend money on another handbag. Being very clear on what your priorities are will help you with your spending habits.”
Get Creative
Think outside the box for ways you can save. “Have you got direct debits for things you never use – even if they’re for small amounts? Cancel them. Are you buying things you really love? This is not about depriving yourself but being totally honest about whether the way in which you spend money brings you joy,” says Caroline. “Are there any other opportunities to make the money you need to settle your overdraft? Don’t just focus on the lack of funds – look for opportunities to become more abundant. Can you ask for a pay rise at work? Up your prices? Take on another project? Sell things you no longer need?” Rhiannon suggests switching your energy provider to a cheaper deal.
Make A Plan – And Make It Realistic
While it’s all very well coming up with inventive ways to pay back your overdraft, your plan has to be realistic for it to work. For example, it’s unlikely that you’ll be able to pay everything back in one lump, so set a monthly amount to pay back that’s not going to leave you with nothing until the next payday. “Start breaking it down so it seems less daunting,” Caroline advises. “For example, I am going to pay back £50 every month by stopping my membership I never use, only going out for dinner once a week, or taking in my own lunch three times a week. Be realistic about what you can and want to do so you don’t end up feeling defeated.”
Always Celebrate Your Progress
Don’t forget to celebrate every month that you make progress towards paying off your overdraft. It’s no easy feat to get yourself out of debt when you have other binding monetary commitments. The celebration will help overcome any negative feelings around money and keep you motivated.
DISCLAIMER: We endeavour to always credit the correct original source of every image we use. If you think a credit may be incorrect, please contact us at info@sheerluxe.com.