Overdraft debt is similar to many other kinds of debt and can be written off through insolvency solutions such as an IVA or Bankruptcy. An IVA stands for individual voluntary arrangement and is a formal agreement between you and your creditors to repay what you can afford over time. At the end of the IVA, any outstanding debt is written off and this could include any remaining overdraft debt. On average, we expect to write off about £10,500 for our clients upon successful completion of their IVA.
Another option which would write off overdraft debt is bankruptcy. Overdrafts, similar to most other types of debt, are included within a bankruptcy agreement. Debts which will not be written off in bankruptcy include:
However, going bankrupt is not a decision to be taken lightly as it is also likely you will have to sell assets such as your home to pay back what debts you can.
However, IVA and bankruptcy should only be considered if you have unsecured debts over £6,000 for an IVA, and £5,000 for Bankruptcy. If you have debts under this level (and it is just overdraft debt) there are other ways of managing it without entering into these formal solutions. Although this won’t write off your overdraft debt it can make your money go much further when it comes to paying it back.
The first thing to do is speak to your bank, they are required to treat customers sympathetically under the Standards of Lending Practice. This means they could come to a solution based on your circumstances. They might allow you to switch to an interest-free overdraft or investigate clearing your debts through a personal loan.
Before you start the budget, you’ll need to work out how much owe. Once you’ve worked how much you’ve got coming in and going out, put it into a budgeting app or calculator.
This can help you keep track of your money and make sure you have enough to make your overdraft repayments. If your budget makes you realise you don’t have any money left to make the repayments, try going on a comparison website to make your bills cheaper.
Organisations such as MoneySupermarket.com could help you switch providers and save thousands that you could put towards clearing your overdraft.
If you’re sitting on savings but have an overdraft, then you could use these funds to repay what you owe.
Saving accounts do not usually earn the amount the interest in your overdraft costs you each year. For example, an overdraft which costs £2,000 with £40 a month interest costs £480 annually.
If you’re lucky, your savings will be making around £26 each year. This means it might make sense to dive into the savings account and use the money there to pay off the overdraft.
Some banks offer interest-free overdraft accounts for a year. Using one of these, you can use the 12 months to clear your overdraft debt without the sum increasing. Make sure you do pay it off in 12 months though because after that you pay 39.9% EAR (equivalent annual rate).
If you’re always in your overdraft – more than £1,500 – then it may make sense to move the debt to a 0% interest-free credit card. For a fee of about three to four per cent of the amount you are transferring, you can use a money transfer card to pay cash into your bank account.
This means your overdraft will be clear and you’ll owe the card at 0% interest.
Most people see their debts build up to unmanageable levels before acting. However, clearing your overdraft – as well as any other outstanding expenses – can leave you better off in the long run.
With the potential for growing interest rates and late fees, an overdraft is something which causes problems for thousands of families throughout the country. Every day, we help those affected by their overdrafts and other expenses manage their debts in an affordable way – and we can help you as well.
To find out if a debt solution could help rescue you from your overdraft, get in touch with our team of specialist advisors today for a no-obligation chat about your circumstances. Alternatively, you can call us on 0161 543 3758.Help me with my debts
* As of 02/02/21 15,377 of our customers were in an active IVA. ** Average unsecured debt anticipated to be written off for IVAs approved between 1 January 2020 and 31 December 2020 is £10,568, based upon successful completion. *** Based on independent verified reviews from Feefo, for the full details of these please click here.
Yes, this a great way to stop paying so much interest on what you owe and clear your overdraft debt provided the interest rate is lower on the credit card than your overdraft. See the ‘transfer your credit card debt to an overdraft’ step above.
This can lead to creditors chasing you whilst interest on the debt builds up to make it unmanageable. The best thing to do is speak to your bank early on and they are likely to help.
Yes, an overdraft is a form of debt similar to all other arrangements where you borrow money.
It is easier to pay off your overdraft in installments once you have transferred it to a credit card. This is because the bank will set a deadline date for when you have to pay back what you owe. If the deadline is far away enough that you can pay it off in installments, then you could pay it off using this method.
However, if the repayment date is imminent, then it may be best to transfer the debt to a 0% interest-free credit card. This gives you more time to pay off the debt in installments - especially as some banks can demand overdrafts are paid immediately.