Barclays customers are reportedly losing a vital financial safety net amid the current cost of living crisis as arranged overdrafts have been scrapped for some customers.
The bank has written to a number of its current account holders to inform them that their overdraft could be removed with a month’s notice if they have not used it for 12 months.
However, many customers are counting on the comfort and security of their overdraft in case they are affected by soaring bills in the coming months.
In light of this, Brean Horne, personal finance expert at NerdWallet, has outlined what you should do if you are affected by the risk of having an overdraft removed:
“With the rising cost of living, banks should be considering their customer’s circumstances before attempting to close or cancel unused overdrafts. However, if you are affected by the risk of having your overdraft cancelled, it’s best to contact your bank directly to provide additional information to confirm your income and expenditure to prove you are able to afford your current limit.”
Below, Brean provides important steps to consider to help pay off an overdraft quickly:
Start budgeting and making small payments
One of the best ways to start making a dent in your overdraft is to work out a budget to stick to each month to help tackle your overdraft debt bit by bit. Begin by working out exactly how much money comes in and out of your bank account each month to see where you can reduce spending.
Try to prioritise more of your income that would usually go on outgoings to pay back your overdraft. It’s useful to make small targets such as £50 – £100 each month to help you stay on track.
Use your savings
It’s beneficial to use some or all of your savings to help pay off your debt and avoid the potential of racking up more interest while your savings are left untouched. It can be difficult to part ways with your hard-earned savings, however using this method will save you more in the long run by helping you manage your overdraft, interest, and bank charges before they start to manage you.
Switch to a bank with lower or interest-free rates
It may be possible to switch to a new and cheaper overdraft provider even if you’re overdrawn. Consider switching to a bank that offers an interest-free overdraft buffer, to help reduce the amount of interest you’ll pay.
You’ll need to let your new provider know that you have an existing overdraft with your existing account and they’ll confirm whether or not you can move it over to them.
Consider a 0% transfer credit card
A 0% transfer credit card allows you to move your overdraft onto the card and pay back the credit card balance during the interest-free period.
The interest-free period could be anything up to three years, depending on the provider. This will give you plenty of time to pay off your overdraft without the worry of additional interest charges.
Take out a low-rate personal loan
This is a good and quick option if you’ve built up a sizeable overdraft totalling £1,000 or more which has accumulated a lot of interest and bank charges. Using a personal loan with a low-interest rate will help you pay off your overdraft and then pay back the loan in faster monthly instalments with less interest.