Overdraft interest rates are set to increase! What can you do?
If you are worried your overdraft interest rate is skyrocketing! You might be right to worry as many people will see their overdraft interest rates skyrocket from April this year.
It started when the financial regulator, the FCA, found that banks were profiting from overdrafts to the tune of £2.4Bn a year!
The regulator thought these fees were too high, and so they banned the monthly or daily fees, and they have been replaced with eye watering interest rates of around 40% for most high street banks. If you have poor credit, you may be charged more.
Here are my 4 action steps;
Step 1 – Get organised. You need to know what you have coming in, going out and what you owe and what you own. This may seem pointless, but trust me on this, after 25 years of giving financial planning advice, everything starts with clarity.
Step 2 – Can you increase your money coming in? Can you take a second job or work more hours? Use sites like www.entitledto.co.uk to see if you can claim any benefits.
Step 3 – Cut your expenditure. A sure way to help this is to reduce what you spend, look at your monthly household bills and ensure they are no more than half of your take home pay, then move across into another account 30% of your take home pay, and use this to cover your monthly variable expenses. To help ensure it lasts, split it equally into weekly payments.
Take the remaining 20% and use this to repay your overdraft.
Step 4 – Arranging a personal loan. Finally, if you think it’s going to take you several months, or years to repay your debts, you may want to consider arranging a personal loan to clear the high interest overdraft. I only suggest this because you should be able to arrange a personal loan for c.10%pa which will be a fraction of the rate you’ll be charged on an overdraft.
Only take this course of action if you continually through the month max out your overdraft, don’t start taking out loans for overdrafts you don’t really use.