Repeat overdraft use: What is it and how can I get out of it?

The Financial Conduct Authority (FCA) has introduced new requirements on banks and building societies to make overdrafts simpler, fairer, and easier to manage. This is to help protect the millions of consumers that use overdrafts regularly, particularly those considered vulnerable. The FCA considers overdrafts to be a high cost type of credit, and these new requirements aim to help consumers understand the true cost of an overdraft. 

Here's what the new rules mean, and how you can avoid repeat overdraft use.

What is repeat overdraft use?

Generally, repeat overdraft use is when you frequently go into your overdraft and may be suffering financially as a result, due to high levels of interest and charges. You may be, for example:

• In your overdraft for ten months of the year
• Using your overdraft so much that you're being charged a high level of normal interest
• Using an unauthorised overdraft, and paying very high charges as a result

However, different lenders have different interpretations of what ‘repeat overdraft use’ is.

Overdrafts are typically a higher cost type of credit when compared to other types of borrowing such as  credit cards and personal loans. The Financial Conduct Authority (FCA) has introduced new rules that require lenders to take action to help people reduce high, avoidable costs.

If you’ve received a letter from your lender about your overdraft, or you’re worried about how you’re living in your overdraft, you need to take action. We're here to help.

What will happen if I'm in repeat overdraft use?

Different lenders have different approaches to helping their customers manage their repeat overdraft use. For example, they will:

• Write to you and inform you about the way you’re using your account, and the cost of this
• Provide you with information to help you to review your monthly commitments
• Signpost you to further help, if they think you need it

Where there are indications that you're in financial difficulty, your bank must work with you to help reduce your overdraft use and address the problem. However, your bank still needs to abide by other FCA rules, such as communicating clearly with you, and treating you fairly. Their action to address repeat use of your overdraft should not cause you further financial difficulty.

How can I reduce my overdraft use?

The first step is to speak to your bank or overdraft provider. They may be able to suggest some steps you can take to reduce how much you owe, or reduce your overdraft limit.

The next step to reducing your overdraft use is to create a budget. This will tell you what your income and spending are each month, and may help you identify areas where you could reduce your spending. Reducing your spending should let you free up money to help you reduce the amount you use your overdraft each month.

There are numerous ways that you can reduce your spending, such as:

• switching utility providers
• saving money on public transport. and
• saving money on food and meals

You might also be able to increase your income by checking you're getting the benefits you're entitled to.

If you have access to digital tools, it’s a good idea to use them to keep an eye on your balance over the course of a month. Mobile banking makes it easy to keep an eye on your balance, and many banks offer alerts to let you know when you’re near to going into your overdraft or near to your limit.

I'm not sure if I need help with my finances

If you're worried you may need help with your finances, then you should try our 60-second debt test.

By answering a few simple questions we'll be able to tell you if you need debt advice. Answer the questions below and we'll help you understand how close you are to having a debt problem and suggest what your next steps could be.

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Or, if you′re not ready to get help, make sure you keep on top of your finances. You can use our budgeting guides to start.

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From what you′ve told us, your debt has become a problem. You may be worried about this, but we can help you.

Get debt advice online now , and you can switch to the phone if you want to talk with someone. Either way, we won′t share your details with anyone.

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You need help with your debts

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Get debt advice online now , and you can switch to the phone if you want to talk with someone. Either way, we won′t share your details with anyone.

We′ll help you to create a budget, which will show you how much you can afford to pay towards your debts. We′ll also help you deal with the people you owe money to, and recommend ways to start to sort out your debt.

We′re here for you online 24/7 and by phone Mon-Fri 8-8, Sat 8-4. If you need to stop and come back later, that's fine.

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"It didn′t matter how many times I re-worked my finances - I would just keep overspending. I just kept telling myself that I had it all under control, but my debts were creeping up over time." Sarah′s story

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