• FREEZE

How Overdrafts Can Lead to Severe Debt Problems

Updated: Dec 11, 2019


If you are regularly having to go into an overdraft, or over an overdraft limit, and are being hit by unarranged overdraft charges you could be heading towards financial problems if you are one of the many financially vulnerable households. And you are not alone, as currently more than 2 million Brits are trapped in a “vicious cycle” of being permanently stuck in their overdraft.


The Problem With Overdraft debt

If you're not monitoring your finances closely, the downward spiral into an overdraft is easy to miss. It can start with just a small overdraft used to avoid bank charges if you occasionally go slightly into the red. But then they can also quickly swell to a crutch that's hard to live without.

Being stuck in an overdraft can be psychologically bad for your health, as you're constantly playing catch-up. It can feel impossible to get back in control. Every month the balance will be reduced when your wages get paid in, but you'll quickly be overdrawn again. It means you're spending the bank's money instead of your own.


Overdraft Charges

Although the financial watchdog, the FCA, is now planning to ban banks from slapping customers with higher charges, proposing that all fixed fees be scrapped, going regularly into the red can be a sign of financial problems.


In the past Overdrafts have been a lucrative business for banks, earning them a whopping £2.4billion in 2017. Under the new rules, we many see many banks may move to increase their interest rates, meaning that you may end up paying more, even if you don’t exceed your overdraft limit.


Being stuck in an overdraft can also be psychologically bad for your health, as you're constantly playing catch-up. It can feel impossible to get back in control. Every month the balance will be reduced when your wages get paid in, but you'll quickly be overdrawn again. It means you're spending the bank's money instead of your own.

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