Effective Use of Your Overdraft

An overdraft facility is a great option if you find that you cannot get a credit card or any other kind of credit. They can often be cheaper than charging something to a credit card in any case. However, some find that overdrafts are not always available. If you are unsure of getting an overdraft facility then you can compare basic bank accounts instead as these can be a good way of managing your finances. Here is a look at some of the pros and cons of having an overdraft.
Advantages of an Overdraft
Although people can get into trouble when using an overdraft, it does have its benefits. To get the best out of your overdraft facility you have to spend wisely and use it effectively. If you have some debt already, such as with a credit card or a loan, then you can make use of your overdraft to pay it off. Some banks will provide an overdraft with an interest-free period so you could use this to pay your other debts and thus avoid extra charges and interest.
Effective Use of Your Overdraft
If you must use an overdraft to pay for leisure activities which you cannot afford to pay for upfront (such as a holiday), then the interest rates can often be cheaper than those of a credit card. However, this is an easy way to accumulate debt so it is best to avoid this. An overdraft facility can be a great emergency cash fund if, for example, you do go abroad and you find yourself short of money or need to pay emergency medical bills.
Disadvantages of an Overdraft
Although sometimes it may be necessary to obtain an overdraft, it is best to be aware of the drawbacks before making this agreement with your bank. If you go over your arranged overdraft limit, you will incur charges. These charges can sometimes be excessive and can take you further over your limit. Try to avoid this by making regular payments to reduce your overdraft.
Another drawback is the interest rate charged by some banks. This can be as high as £1 per day so you may find that even if you are trying to pay it back, you may only be covering the interest. Your overdraft facility may be withdrawn by your bank at any given time and they are free to demand full payment.
If you do find yourself in debt, you can transfer your balance over to an interest-free credit card. These are difficult to obtain but there is no harm in applying as you can save a great deal.
Of course, the best thing to do to avoid debt is to live within your means. Keep track of your incomings and outgoings and you will find it much easier to avoid using an overdraft entirely.

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