Don’t get over­wrought about an over­draft

The Jewish Chronicle - - LIFE -

AN OVER­DRAFT is a debt like any other. If you don’t man­age it, it will spi­ral out of con­trol. Your aim should be to cut the cost and re­pay what you owe. Here are my tips on how:

Get paid £100 to take a free over­draft. There are two big play­ers who of­fer de­cent deals for those with over­drafts who switch ac­count, though you’ll need to pass their credit score. Go to www.first­di­rect.com, which is the top rated rated bank for cus­tomer ser­vice (92 per cent of my web users rated it “great”) and you get an on­go­ing £250 over­draft. Cru­cially, it also gives you a £100 sign-up bonus, which you should put to­wards your debt. To get it you’ll need to pay in your salary or in­come, which must be at least £1,000 a month. Al­ter­na­tively for a po­ten­tially larger 0 per cent over­draft there’s the www.na­tion­wide.co.uk FlexDirect ac­count. Yet it only gives you this over­draft for the first year, so en­sure you use that time to clear the debt.

Shift your over­draft to a 31-month 0 per cent card. While you may have heard of credit card debt-shift­ing deals called bal­ance trans­fers, a few cards also of­fer a “money trans­fer” where it sim­ply pays cash into your bank ac­count, so you can then pay off your over­draft. This is a good op­tion if you’ve a big­ger over­draft and will need more than a year to re­pay it. My top pick card right now is www.mbna.co.uk, which lets ac­cepted cus­tomers do it at 0 per cent for 31 months for a one­off 4 per cent fee (it’s 2.88 per cent for nor­mal bal­ance trans­fers). How­ever, it’s credit score de­pen­dent, so use the www.mse.me/eli­gi­bil­ity tool to see which money trans­fer cards you’ve the best chance of get­ting.

If mak­ing a money trans­fer fol­low these golden rules:

Don’t as­sume all cards do a 0 per

There are golden rules to fol­low when mak­ing a money trans­fer

cent of­fer — most charge a for­tune.

Al­ways re­pay the monthly min­i­mum or you’ll lose the 0 per cent deal.

Plan to clear the amount by the end of the 0 per cent pe­riod or it jumps to the full rate —with MBNA that’s 22.9 per cent rep APR.

Take ad­van­tage of the step-bystep help in www.mse.me/mon­ey­trans­fers.

Man­age your way back into credit. Cut­ting the cost of your over­draft isn’t the end game. You should aim to al­ways be in credit (or at least al­ways within your over­draft when there’s no cost).

Ask com­pa­nies you pay to shift di­rect debits to near the end of your work­ing month. If paid on the 25th, aim for the 20th. This ar­ti­fi­cially boosts your bal­ance so you’re in the red less. But don’t spend the cash.

Mov­ing bill dates cuts fees, but won’t tackle the over­draft. So sit down and do your own bud­get to find out where you can cut back.

Or­gan­ise in­com­ing cash and move it into bill pots at the start of the month so you’re not tempted to spend un­nec­es­sar­ily — it’s called pig­gy­bank­ing. Use this tech­nique to make pay­ments — eg £100 a month — to your over­draft, treat­ing it like any other bill. Use my au­to­mated bud­get planner to help at www.bud­get­brain. com.

Poor credit? Get 0 per cent respite from bank charges. There is one card that of­fers 0 per cent on spend­ing un­til Oc­to­ber even for those with a poor credit his­tory — the www.luma. co.uk card.

Now as this isn’t a debt shift­ing card, you have to play clever and be dis­ci­plined to take ad­van­tage of it for re­duc­ing over­drafts. The tech­nique is to do your nor­mal, bud­geted, dayto-day spend­ing on the card up to the credit limit, in­stead of from your bank ac­count. This builds up the debt on the card, but al­lows your over­draft to be re­paid by your in­come. En­sure you can make monthly re­pay­ments to clear the card be­fore the 0 per cent ends as the rate jumps to 34.9 per cent rep APR.

If you have an over­draft, the night­mare sce­nario is ex­ceed­ing your lim­its and get­ting stung with bank charges — these trans­ac­tion fees can be £6 per day or up to £25 per trans­ac­tion. Get it wrong and they can add up to thou­sands of pounds an­nu­ally. Do ev­ery­thing you can to avoid them and com­mu­ni­cate with the bank if there’s no so­lu­tion.

How­ever, if you have been af­fected, re­mem­ber that re­ports of the death of re­claim­ing un­fair bank charges have been ex­ag­ger­ated. Ad­mit­tedly it’s now mainly to com­pen­sate where charges have put you into fi­nan­cial hard­ship. Yet some do get money back. For help and tem­plate let­ters on how to re­claim bank charges for free, see www.mse.me/ bankcharges.

In dire straits? If the debts are all too much, it’s worth con­sid­er­ing help from non-profit agen­cies like www. stepchange.org, www.citizensad­vice. org.uk, and www.na­tion­aldebtline.org. Re­mem­ber that they’re there to help, not to judge.

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