Overdrawing your bank account can happen all too quickly. And suddenly you find yourself using your overdraft facility. It can happen unexpectedly and in very different situations – whether it’s due to unplanned spending, a large purchase or temporary cash flow issues – the overdraft facility offers short-term financial flexibility. It is, however, one of the most expensive types of loan due to its comparatively high interest rate. All the more important then to ensure you pay it off as quickly as possible to avoid unnecessary costs. In this article, we’ll show you how to get out of the red, step by step:
1. Get an overview
Where is your money going? Get a clear overview of how much money you have and your regular income and expenditure. Use your online banking or a notebook to analyse your finances in detail. This way you can work out how you overdrew your account.
2. Reduce your expenditure
Prioritise your spending and make a note of what you need to spend money on and what is an avoidable expense. Cancel unnecessary subscriptions or spending on expensive leisure activities. Look to get better deals on your utility bills, insurance or on your internet connection.
3. Find ways to generate additional income
When it comes to paying off your overdraft – every euro counts. Consider how you could earn some extra money from another source of income. For example, by selling items you no longer need via online platforms or at flea markets or car boot sales.
4. Pay off your overdraft or refinance it
Draft a repayment plan and work out how much money you can set aside each month to pay off your overdraft. In many cases, a loan with a lower interest rate is a sensible alternative to refinance your overdraft and avoid higher rates of interest. A bank loan offers fixed monthly payments and usually lower interest rates. Your local bank can advise you on the best course of action and help you find the best solution for you.
5. Avoid dipping into your overdraft in future
Using a fixed savings plan, you should look to build up a buffer in case of emergencies. Ideally, you should look to have a buffer of three months’ net wages. Keep an eye of your finances in future and take note of your income and spending.
Take advice
Don’t hesitate to contact your bank to discuss your finances before your overdraft gets out of hand. Let your bank help you find solutions to reduce your overdraft.
In very challenging cases, it may be worth contacting a debt councillor.
With a clear plan and some belt-tightening, you’ll be able to get out of debt and pay off your overdraft.
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Vivien Rottka
Media Relations
