Being in debt and feeling out of control of spiraling money troubles is tough at any stage in life. For a student with no mainstream of income, living for long periods with little or no money is an extra scary time.
The best way, financial experts say, to avoiding debt is to manage our money. However, there are many students juggling little money with a walloping hole in their bank account. Is it possible to climb out of your overdraft without winning the lottery?
We are encouraged to chop and change bank accounts by those who know the ins and outs of money but often neglect to advice those locked into a bank account what they can do about it.
Becoming 'locked in' to a bank account can happen for a few reasons, including;
- a poor credit score that prevents you from getting the best accounts on offer
- an arranged (or pre-allowed) overdraft which has grown over the years to a point of no return
An overdraft can get you out of a financial pickle but if you fail to keep on top of it, it will become bigger, remaining a significant hole in your stash of cash. When this is the case and your overdraft is big, switching to another bank with a better account and benefits is virtually impossible.
Many people are quick to demonise credit cards but what many don't realise is that if you are living in your overdraft then your debit card IS a credit card.
The good think to know is there are ways that you can combat your overdraft and climb your way to a debt free life.
How to escape your overdraft
Obviously, the smaller your overdraft the better, and the more options you have to help you escape.
1. Get a better deal with another bank
Shop around for banks offering low-interest rates for overdrafts that are of a similar size to the amount of debt you are currently in. Some banks offer enticing deals such as £100 when you join up or offering free products and vouchers.
2. Hassle your own bank
Ask you bank what they can do to help you climb out of your overdraft. Some banks are helpful whilst others are not so forthcoming but if you don't ask, you won't know what help they can offer.
3. Consider a 0% credit card
For those of you that have big overdrafts (we're talking £1500 and upwards), you could look at finding a credit card that has 0% credit transfers as it's very unlikely that a fee-free bank will help you unless you have a really high income.
Once your overdraft is costing you less, you need to repay a set amount each month. This is a simple concept on a credit card, you just need to pay off the balance before the 0% period ends. If not the fees will rocker up, even higher than the fees from the bank.
4. Budget, budget, budget
If you're on a 0% overdraft, you must budget to make it happen. For example, on a £500 overdraft, to clear it over 10 months, make sure that you leave £50 each month in the account that you do not touch. By month 10, you'll be out of your overdraft but this method means budgeting and sticking to it...
Tried to get out, but you're still locked into your overdraft?
Some people will be rejected from the escape routes that we have outlined above. But it's really important to know that any financial firms are regulated to treat you fairly.
Sometimes all you need to do is pick up the phone to call your bank and remind them of this. You can ask if they can waive fees or reduce interest rates or even find another way to help you out.
If all else fails, and you're really struggling to manage all debts, talk to a free non-profit debt counseling agency like Citizens Advice, National Debtline or StepChange. A bank will often take them more seriously than you trying to sort it out yourself.
The best ways to manage your overdraft
The main thing is sticking to a realistic budget that you can afford. But extra things you can do to help are:
Shift your direct debits around so you can minimise fees.
A little tip that may help you is to move all your direct debits to a date just after you get paid. If you're paid on the 18th then move all the direct debits to go out on the 29th of the month so that your important direct debits and payments are made.
Make better use of our app.
The Loot digital current account will never allow you to drop into the red but it can also help you to stretch your money further. It's free, simple to use and hassle-free.
You can climb out of your overdraft
Being savvy with money is an essential life skill but many of us are taught how to manage our money properly. Living in your overdraft means you are living off an emergency pot of money each month. The answer lies in realistic budgeting, leaving a little extra dosh each month to pay off what can be a pain for many of us, the dreaded overdraft.