Overdrafts

How Many Overdrafts Should I Have?

You may wonder whether it is a good idea to have more than one overdraft. This is something that some people do and some people do not. It is worth thinking about whether it is something that is a good idea for you.

Advantages

If you have an overdraft for quite a small amount, then having another one could be handy. It will mean that you will have to open another current account that offers this service. It could be worth looking around to see what is available as you will find that current accounts will vary in how much they charge for overdrafts. They have to only charge interest and the rates they charge will differ, although they tend to be between 35% and 40%.

Disadvantages

The more overdraft money you have available to you, the more you can borrow. Although this sounds good, it is easy to forget about the cost of that borrowing. You will be charged as soon as you get overdrawn. Normally an overdraft is repaid when you have some money paid into your account. This means that when you get paid then it is repaid. If you have two separate overdraft in two separate accounts then it is likely that you will only have money going into the one account. The other will not and so the overdraft will not get paid off and this will be expensive for you as you will have to keep paying the interest on it. So, you need to think hard about whether it is a good idea to have a second one and pay that interest or not.

Alternatives

It could be well worth thinking about whether it could be a good idea to think about an alternative idea instead. It could be worth stating by asking your current overdraft provider whether they will be able to extend your overdraft and lend you a bit more money. It could also be worth looking into other borrowing ideas which could be cheaper. You might find that you could use a credit card, for example which could have a lower interest rate than an overdraft and you will still have no pressure to pay back very much, just a small minimum each month to cover the interest, the same as you would have to with paying the interest on an overdraft.

It might be better though, to get a loan which you do have to repay in instalments and then it will not last so long and you will be sure that you will get it paid off. It can even be good to think hard about whether you really need to borrow the extra money at all. Consider whether you have some savings you can use instead or whether you can wait to buy the item once you have more money. It can be a good idea to also think about whether you can reduce your spending in other areas so that you will have more money available so that you do not need to borrow. You might be able to buy items at lower prices or buy less items so that you will not be spending so much and will have more available. You might also be able to find ways to earn more money as well which could help you. Of course, conventional jobs may not be easy to come by or you may not have the time to work more than you are already. However, you might be able to make some money by selling things that you own, by making things to sell, doing online freelance work or things like this. It is well worth investigating all of this so that you can decide whether there is something that you can do which will help your situation and mean that you can avoid getting a second overdraft. It is far better to only have the one and will be easier to repay it and keep track of it as well as keeping your costs down as well.