In my first year of uni, I managed to stay clear of my overdraft entirely, having saved quite a bit from a summer job. I also had the usual student loans and picked up a part time job.
By the end of my second year, I had started a cycle that would continue for the next 5 years. I would max out my overdraft, pay my wages/loan into that account, enjoy having an actual bank balance for about 5 minutes before I would end up with my overdraft maxed out once again. If i had -£1900 on a £2000 overdraft, I looked at that as having +£100. I had stopped looking at it as a loan and somehow it had become my day to day spending.
As I mentioned in my earlier post, when I decided to whip my finances into shape, I opened a new current account, and ignored my overdraft account while paying off my urgent debts.
By the time I was ready to tackle the overdraft, I was thinking of the future and hoping to save for a house deposit. I decided that rather than putting all of my efforts i to my overdraft, I would focus on saving, and pay a set amount off my overdraft each month. I made this £100. Remember, it was interest free so wasn’t costing me anything. I would definitely not recommend this if you are being charged a fee for your overdraft. The interest you make on saving will be far outweighed by the interest and usage fees charged on your overdraft. Get rid of any debts that are costing you more than they should!
I set up a monthly standing order to my overdraft account for the same date as most of my bills are paid, and began saving £100 per week in an ISA. I would top this up regularly using some of the same tricks as when paying off my previous debts. Rounding off my bank account, transferring everything from my current account to my savings account the day before payday etc.
Towards the end of my overdraft payments, I ended up withdrawing around £700 from my savings to pay off the last of it and just have it over and done with. This was mostly due to having discovered my credit rating and a new found obsession with that. It turned out paying off my overdraft was a quick fix to improve my score quite substantially.
I was still left with some money in savings, and was able to concentrate solely on boosting that pot after my overdraft had been dealt with.
What are your thoughts on overdrafts? Before I went to uni, I had a meeting with my bank manager to change my kiddie current account over to a student account. I was offered an overdraft of £1000, which would increase each year of my studies. I didn’t necessarily need it at the time, but I didn’t turn it down because it was just the standard student account deal, also, I was 18 and didn’t know any better.
Debt, loans, credit, it’s all pushed on students. Luckily, I did have the sense not to apply for any of the thousands of credit cards I was offered while at uni. I dread to think where that could have left me!
What if I had actively refused the overdraft? I do wonder where I spent that money, and if I could have lived without it (maybe in did genuinely pay for groceries and bills and shit). If there was one piece of advice I could give my fresh-faced teenage self, it would be to steer clear of the overdraft. It was such a normalised type of debt that it just didn’t see, a big deal, all of my friends had student overdrafts, most were constantly maxed out and in the same position as I was.
Is anyone else out there still absolutely kicking themselves over this, years after graduating?!