Many of us run short of cash by the end of the month.
Your bank may understand this and could possibly be generous and offer help in the form of an overdraft. The problem is that they charge for this generosity, and the amount they charge will be going up dramatically.
If you are a habitual overdraft user, you need to find some alternatives, and at Continuum we can help.
What is happening?
If you had agreed an overdraft with your bank, the cost would be moderate. Going into the red by a few pounds for a day or two might even be free with some banks. But when people went severely into the red with an unauthorised overdraft, the cost often came as a nasty shock.
New guidelines imposed by the Financial Conduct Authority in 2019 to make charges simpler and fairer mean that you will always know the charge you face if you use your overdraft.
This includes an end to some fees and stopping banks and building societies from charging higher prices for unarranged overdrafts than for arranged overdrafts.
This sounds fair in theory, but in practice, you could now see even your authorised overdraft charges jump to almost 40%.
As an overdraft has become an expensive luxury, you may need to find ways to pay off debt.
Can you shop around?
Banks and other financial providers will be required to advertise overdrafts with an APR (annual percentage rate) to help customers shop around. But almost all providers seem to be preparing to charge a flat rate of around 39.9%. Nationwide Building Society has already done so, and more lenders are about to follow, from as early as March 2020.
It looks as though there is little to be gained by moving your account. You need to find a way to deal with the debt itself, and that is where Continuum can help.
Putting your cash onto a firmer footing
The first step is to clear off the debt you are carrying with you from month to month. One of the simplest ways to do this is to use a 0% credit card
Many credit card providers offer an interest-free period for balances transferred from elsewhere to attract new customers. They allow you to shift your debts onto a new card where you can pay it off without incurring interest for a set period, which can be up to two years.
If you have a £1,000 overdraft, you could save yourself almost £400 in a year compared with the new overdraft charges.
You can see details of the latest card offers including 0% deals on comparison sites. But you still need to pay off the debt.
Getting some help with planning your finances
So, the next step is therefore to sit down with a Continuum Financial Adviser for a financial review. They will help you go through your finances, see where there could be savings, and how to make better use of the resources you have.
They may be able to see where savings can be made, by cutting the costs of buying your home, or getting a better deal for your insurance cover. They can help you draw up a monthly budget which could include a plan to pay off the debt.
But your adviser won’t stop there. At Continuum we like to take the long view, and not only will we help you make sure your short-term finances are in order, we can help you find better solutions for the long term.
We might be able to help you pay less for your mortgage, or for the insurance protection you and your family need. We can help you plan for a more prosperous future and try to ensure that you never be caught by an overdraft – or a 40% charge – ever again.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.
Your home may be repossessed if you do not keep up repayments on your mortgage.
The Financial Conduct Authority does not regulate deposit accounts & Banking Services
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