Most banks charge ~40% EAR on arranged overdrafts. That's expensive borrowing. If you're stuck in the cycle, here's how to escape — building on our debt repayment guide.
Understanding Your Overdraft Cost
At 39.9% EAR, a £1,000 overdraft costs ~£33/month or £400/year. Check your last 3 months of statements for actual charges.
The Escape Plan
Step-by-step approach.
- Calculate how deep you typically go
- Target reducing by £50-100 each month
- On payday, transfer your reduction amount BEFORE spending
- Budget to live on what remains
- As overdraft reduces, ask your bank to lower the limit
- Consider a 0% money transfer card if your credit allows
Quick Wins
Cancel unused subscriptions. Sell unused items. Do a no-spend challenge. Redirect windfalls to the escape fund.
Preventing Relapse
Build a £200 buffer for unexpected costs. Use SYM challenges to build this gradually. Reduce your overdraft limit to £0 or close it once free.
Frequently Asked Questions
Can I switch banks while in overdraft?
Yes — some banks offer switching incentives including matching overdraft limits. The switch service handles everything.
Should I use a loan to clear my overdraft?
If over £1,000, a personal loan at 5-10% is far cheaper than 39.9% overdraft. Just don't run the overdraft up again.
What if I can't afford to reduce it?
Speak to your bank — they must help if you're in difficulty. Free advice from StepChange or Citizens Advice can help.
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