Is it bad to be in your overdraft?
No! Finding yourself in your overdraft is completely normal, and will happen to almost everyone at some point. Managing money and budgeting isn’t easy, and if you find it hard you're not alone.
Although it might sometimes feel like it, an overdraft isn't free money. It's a debt you'll have to manage and payback.
We've put together a few tips on how to get out of your overdraft. But if you find yourself in serious debt, get in touch with a debt charity like StepChange or National Debtline for advice on how to manage it.
It's also worth keeping in mind that from the 6th April 2020, the Financial Conduct Authority said that banks can’t charge you for going over your overdraft limit, and will have to charge a single interest rate instead of fixed daily or monthly fees. Read more about it here.
1. Keep track of your money
Keeping track of your money and knowing how much you have in your bank account is crucial if you want to know how close you are to your overdraft limit.
Monzo will notify you as soon as you spend, and update your balance instantly. It means you can see exactly how much you’ve spent, as soon as you’ve spent it. And see how much money’s actually left in your account.
Using Monzo to manage your money will help you know how close you are to potentially going into overdraft or running out of money.
2. Move your overdraft to a credit card
Moving your overdraft to a 0% money transfer credit card could help clear your overdraft because you’ll be able to pay back the credit card over an interest free period.
It can work out cheaper because you won’t be paying interest, but it’s important to look into what type of money transfer credit card to use before doing this!
Some money transfer credit cards charge handling fees, so make sure these fees are less than your overdraft charges (otherwise you might be paying more!).
Also, it’s important to look into when the interest free period would end. When it ends, you might be charged a standard rate of interest unless you’ve paid off the balance!
3. Repay debts with the highest interest rate first
Although it might not seem like one, an overdraft is a debt. Have a look at all the debts you might owe, and see how much they are. Don't forget to include interest rate and fees to this too so you’re getting a full picture.
If your overdraft is the most expensive, prioritise paying this first. Make small payments to your other debts (like credit card debt) so you can focus on paying off your overdraft first.
Once you've got the biggest debt out the way, the rest will feel easier to take on!
4. If you have a savings account, this could be a good time to dip into this
Some people use money in their savings account to help themselves get out of overdraft, especially as more often than not, having an overdraft will cost you more than interest earned from saving your money.
Financial agony aunt Laura Whateley advised a Monzo user in debt to stop putting money in a savings account until they’re debt-free. She states that there's not much point putting money in a savings account that's paying 1 or 2% interest, if you’re simultaneously chipping away at an overdraft or a credit card with interest rates of 20% or more. Read more of her tips on dealing with debt here.
5. Look into whether you need to pay account fees
Some people prefer to pay a monthly fee in return for a large overdraft from their bank or building society. If you're paying a monthly fee for premier banking, it can be worthwhile to look into whether you can move your overdraft to somewhere else.
Then you'll be able to get a no-fee account whilst using the savings on the monthly fee to help clear your overdraft.
Here are some quick ways you can try get out of overdraft
Being in credit instead of being overdrawn is not always easy. But here are some quick things that can help you get there faster than you might think.
Shifting direct debits to the end of the month will mean it feels like you have more money for longer. This might mean that you're overdrawn for less time. Just be careful to budget properly so you don't accidentally spend your money before your direct debit is due.
Budget budget budget. There are lots of different types of budgeting techniques to use. From piggybanking to the 50-20-30 method, find a method based on your income and outgoings that works for you. Here's more on how to budget (and actually stick to it). Budgeting can help pay of your overdraft because it'll make it easier to have money each month set aside so you can pay off your overdraft in installments.
How do overdrafts at Monzo work?
We decide if we can offer you an overdraft when you sign-up
When you open a Monzo current account we take a look at your credit file to help us decide whether we can lend to you. This is known as a 'soft search' and will show up on your credit report as a 'quotation search' and 'administration review'. Lenders can't see this information though, so it won't affect your chances of getting credit.
You can turn it on in the app and choose your own limit
If we can offer you an overdraft, you can switch it on during the sign-up flow or turn it on later by heading to your Account. You can choose how much overdraft you’d like with us within the amount we can offer you. You can change this amount at any time in your app, as well as switch it off entirely.
We charge an EAR of 19%, 29% or 39% (variable)
Your rate will depend on your credit score, and we’ll always tell you the exact rate you’ll pay, and what that means in pounds, before you borrow from us.
EAR stands for effective annual rate. This is equivalent to the rate of interest you'll pay if you're overdrawn for a year. You'll pay interest on the amount you're overdrawn by, and on the interest that builds up from being overdrawn. So you'll pay less if you regularly pay off your overdraft. EAR doesn’t include other fees, like hidden or late fees – but we don’t charge these anyway.
Variable means we have the right to change the rate, but we’ll always give you notice if we do.
Find out everything you need to know about Monzo and overdrafts here.
See if you’re eligible for an Overdraft by downloading Monzo✨