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Overdraft debt

Overdraft debts. How to deal with them

An overdraft is a type of credit that is linked to a bank account. It allows you to spend more money than is in your account, up to an agreed limit.

Overdrafts are a type of consumer credit.

They are payable ‘on demand’. This means that the bank can ask for the money back in full, at any time.

Overdrafts a very expensive way to borrow money due to high interest rates.

How does an overdraft work?

Most current accounts have an overdraft.

An arranged overdraft is when:

  • The bank lets you spend more money than is in your account
  • The bank sets a limit on what you can spend outside of your balance
  • The bank charges you interest for using the overdraft
  • There are no other charges

Dealing with bank account debts

There are two main type of bank accounts.

Basic accounts

These accounts do not have an overdraft or a cheque book.

This means you cannot spend more money than you have.

Some basic bank accounts come with cash cards for cash machines.

Other accounts come with debit cards.

Most basic accounts let you set up standing orders and Direct Debits.

Your credit rating is checked when you open a basic account but you should be approved whatever your credit history.

Current account

Current accounts usually come with:

  • An optional overdraft
  • Cheque book and
  • Debit card

You can set up Direct Debits and standing orders on the account.

Banks often check your credit rating when you open a current account. They can refuse an application based on credit history.

You might have to pay a certain amount of money into the account each month, or pay a monthly fee.

Worried about your overdraft debt?

Use our online debt advice tool to find the best way to deal with overdraft debt.