Back to normal after the bank holiday Monday…so I’m sat here with my eyes half closed and a bucket of tea just as if it really was Monday! 😉
I wanted to talk about pennies today, not least because we saved ourselves a few quid yesterday! Mr.B and I have swapped our broadband and pet insurance and saved about £30 per month. If you want to try this, have a read of The Old Switcheroo.
Secondly, overdrafts! Mr.B and I were doing some research yesterday and we were talking about credit. The scary thing is that most people can get an overdraft…and they keep it.
Here are the issues:
- It teaches poor money management: Effectively being your own payday lender; when money goes into an account with an overdraft, it gets used paying that off and then you’re short for the month and have to borrow it again.
- There’s no fixed term. If you start with no fee overdrafts, or even a low fee one, there is nothing to stop the bank adding a fee or hiking one up! This happened to me with my student account.
- They make you believe it’s standard: It comes with your full account, or they’ll immediately offer you what ‘most people’ have.
- As I said, the debt cycle keeps you in it.
- Society thinks they’re acceptable, not even really counted as ‘serious credit’ by some.
So what can we do about it?
The short answer is GET RID OF IT! But in order to do this, you need to implement a few things. Firstly, you need some sort of emergency funds (£500-1000) so you don’t use it again. Secondly, you need to stop using it and start paying it off. If you’re insanely disciplined, you could leave a bit in there each month.
If you’re like the rest of us, then the easier option is to open a new account with no overdraft. Move all your payments to the new account and budget yourself an amount to stick in the overdraft account each month until it’s paid off…then close the account!
Sounds simple (and it is) but so few people do it, I just thought I’d put the idea out there.
As a side note, if you need extra cash one month you are flexible enough to not pay in…which is psychologically better than paying it and then using overdraft again.