If you have an overdraft facility then it could always be a concern for you whenever you use it but it may be that you do not worry about it at all, we are all different in how we feel about it. It is worth understanding a bit about the costs and consequences of an overdraft so that you can use it wisely and therefore not give yourself anything to worry about.
How an overdraft works
An overdraft facility is tied to a current account. Your current account provider will decide whether they are prepared to allow you to have an overdraft. If they do offer one, they will give you a limit, perhaps £500 that you can spend on it. Anything above your overdraft limit is called an unauthorised overdraft. When you go overdrawn you will be charged interest for every day that you are overdrawn and you may also be charged fees as well. For an unauthorised overdraft this will be much higher.
There are no formal repayments with an overdraft but as soon as money is paid into your current account it will go against the overdraft and therefore paying it off. The unauthorised part will be repaid first and then the authorised part afterwards.
Costs of an overdraft
An overdraft can be very expensive compared with some other loans such as those offered by Emu.co.uk. If you look at the interest rate you will be able to compare it. An unauthorised overdraft can be one of the most expensive ways to borrow money. It is worth comparing costs though as your current account provider may have more reasonable rates than others. If you do think that you are going to go overdrawn in the future then it could be wise to move your current account to one that has a better costing overdraft. Do remember though, when you are comparing costs that it is not just the interest rate that is important but also the costs. There might be a one off charge for going overdrawn or you might be charged per day. Make sure that you find out so that you can properly compare the costs of the different accounts.
Consequences of being overdrawn
There are other consequences of being overdrawn as well as the costs. You will firstly find that it will show up on your credit record and this will mean that you may struggle to borrow money at the moment or in the future. If you need money in an emergency and have used up your overdraft then you could struggle to find the money that you need. You may also find it very stressful if you have debt like this and the pressure to get it paid back might even make you unwell.
Worry is not good for our health and so you should try to avoid it. However, if you do have an overdraft then you might find that the worry just comes anyway. It is far better to try think about way to resolve the situation rather than just worrying about it.
Alternatively you might not be worried about it at all. This can be just as bad in a way as although it will not impact you now, it could mean that in the future you have a lot to worry about instead. If you build up until your debt is unmanageable or you want to borrow money and cannot because you have a poor credit record, then this can be difficult as well.
It is therefore best to be aware of what money you owe and get together a plan for paying it back. Try to reduce your spending to just the basics so that you have more money to repay with. Think about ways that you can earn more money, perhaps by working more hours, getting a second job, selling things you own or renting out space in your home. Hopefully if you have a plan of action then this will give you something to focus on rather than worrying It will not be easy to do these things but it will make a difference and every bit of extra money that you can put towards that overdraft will make a difference. You are being charged interest on every bit that you owe and so if you owe less, then that interest is less. This means that you will pay out less and less in interest as you pay off more and more overdraft and you will be able to pay it off more and more quickly. It is just a matter of starting and getting into the habit of being frugal and earning more if you can. Keep focussed on your goal of paying off the debt rather than worrying about it and you should be able to whittle it down without feeling stressed about it.