How to pay off your overdraft

 

Convenience can be costly

An arranged overdraft can be a helpful way to cover short-term borrowing needs. But daily interest costs can quickly add up the longer you’re in your overdraft, or if you use it regularly.

There are steps you can take to clear your overdraft and reduce your reliance on it.

5 tips for paying off your overdraft

1. Evaluate your spending

If you’re stuck in a pattern where you dip into your overdraft regularly, the most practical thing you can do is to focus on budgeting.

Start by making a list of your regular outgoings. Is there anything you could reduce or cut? Consider cancelling subscriptions you don’t use, spending more selectively and avoiding non-essential purchases.

This could help you to repay more now and rely on your overdraft less in the future.

2. Set yourself a goal

Once you’ve reviewed your outgoings, set yourself a budget and do your best to stick to it.

Some people bounce in and out of their overdraft each month, usually between their salary being paid into their account and regular bills coming out. If you can’t avoid using your overdraft in the short term, aim to reduce the amount your dip into it each month, gradually reducing your reliance.

If your overdraft is on a separate account that you transfer money to, focus on repaying as much as you can, as often as you can.

3. Focus on what’s costing you the most

If you have multiple balances on things like cards, loans and overdrafts, work out which have the highest interest rates. By repaying those balance first, you could cut your overall borrowing costs.

Just be aware that many loans have fixed payment schedules and you’ll need to make at least a minimum monthly payment on any credit cards you have.

4. Consider other borrowing options

If you’re using your overdraft regularly, you might find another borrowing option is more cost effective:

A personal loan could help you get your finances in order now, with a structured repayment plan to follow until your loan is cleared. Loan interest rates can be lower than those on overdrafts.

A credit card could help you to consolidate existing debts, manage day-to-day purchases and more. Standard interest rates can be lower than with overdrafts, and promotional rates may be available.

Explore all borrowing options

Whatever borrowing option you choose, make sure you understand any interest rates, fees and charges that apply. And always aim to borrow over the shortest possible period to limit your borrowing costs.

5. Talk to us

We’re here to support you with your money worries. If you are struggling to pay off your overdraft or manage your finances more generally, we can help.

For more support, you can also access free independent help and advice.

Continuing to manage your overdraft

Once you’ve managed to pay back your overdraft, it’s sensible to continue to monitor your spending. That way you’re less likely to dip into your overdraft regularly.

It’s easy to manage and keep track of your Lloyds current account using online banking and the app.

You might consider:

Saving for a rainy day

It’s sensible to keep a cash reserve handy for emergencies or unexpected bills. For this, you might like to select a current account that pays credit interest on held balances.

Reducing your arranged overdraft limit

You might be more conscious of your spending when you have a smaller buffer to fall back on. Just be aware that decreasing your limit can affect your credit utilisation ratio and credit score. It could also affect your credit score if you go over your arranged overdraft limit.

How much might an overdraft cost?

Refer to your account terms and conditions to find out the interest rate that applies to your overdraft.

Let’s look at the details

  • While you’re in your overdraft, interest will continue to be charged, increasing the amount you owe.

    If you don’t make payments to clear your overdraft, your bank might get in touch to help you find a way to regain control and limit your borrowing costs.

    Your bank could also:

    • ask for full repayment
    • withdraw your arranged overdraft
    • take steps to recover what you owe.

    Failing to repay your overdraft can also negatively affect your credit score, potentially making it more difficult for you to get credit in the future.

    If you’re ever struggling to repay your overdraft, get in touch to discuss your options.

  • Like any form of borrowing, any interest you pay on your overdraft is often greater than your savings interest rate. So you could be better off putting any money you have towards clearing your overdraft, rather than saving.

    Once the debt is cleared, you could look at building up an emergency savings fund, then start to think about other saving options.

Getting started online

 

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Join our 10 million app users.

  • Simple and secure login.
  • Set up handy notifications.
  • Message us online.

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Log in to view or manage your accounts on our website.

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Current account support

We're here to help you get the most out of your bank account.

Get more support