If you have an overdraft then you may wonder whether it is worth trying to repay it. You may even find that you are advised that it is not worth repaying. It can be difficult to know what to do but you should be able to make the decision if you weigh things up.

About overdrafts

An overdraft is where you borrow money from a bank that you have a current account with. They might allow you to borrow a certain amount of money. This is called an arranged or authorised overdraft. They will have a certain fee structure for this. It might be possible for you to borrow more than this or to borrow if you have not arranged an overdraft and this is called an unauthorised overdraft and is much more expensive.

It is likely that with an authorised overdraft you will be charged a monthly standard fee and interest and with an unauthorised overdraft you will pay a daily fixed fee and higher interest. These can both be very expensive.


As you can see an unauthorised overdraft is very expensive and charged daily. You need to repay this as soon as you can because you need to avoid these charges. However, with an authorised overdraft you get charged monthly and however high your overdraft you get charged the same monthly fee. This means that if you pay small amounts off your overdraft that fee will not go down and so some people might say that it is not worth paying off as you are still paying that fee.

However, you are paying interest on top of that fee and that will reduce as you pay off the overdraft. You also will be getting loser to paying off the debt as you repay more and more of the overdraft, this will help you to feel more motivated to get it all paid off and avoid those charges. Even though you will pay the same charge however much you owe, your interest charges will go down.

One thing to be wary of though is that lenders are all different in the way that you charge so make sure that you are aware of how yours works. The charges and interest may be calculated and applied differently and this could have an impact on how you should think about repaying it. You may find too that if you have an unauthorised overdraft, pay some off so you are within your authorised overdraft but then spend some so you go back into the unauthorised this could be costly. If there is a one-off fee for going into the unauthorised overdraft you will be paying this over and over again as you go into it, pay you way out and go into it again, so try to make sure that you avoid doing this if your fee structure is like this.

Generally, overdrafts are really expensive and it is well worth repaying them as soon as you can. It is good to try to focus on doing this and think about how you can both reduce your spending and increase your income so that you can do this. It can be tricky to do this but if you stay focussed this can help. Realise that it will not be a permanent change, but that you will have to give up some things, such as buying items and your time in order to get it repaid. The sooner you get it repaid the less you will spend on it and therefore the more money you will have in the future. It can be hard trying to plan your future when you want things now but it is wise to make sure that you think of it. You can be more relaxed and wealthier if you plan things well. Repaying your overdraft will also improve your credit record. This means that if you want to borrow in the future, perhaps to buy a home or do repairs then you will be able to do so. If you keep the overdraft and have a poor credit record then you will not be able to manage this. It also does not make sense to keep paying out these charges to keep the overdraft. They are high and it is better to work out a method to repay what you owe so that you do not have to pay them anymore.

If you have other debts, then it can be a bit more complicated. You may be trying to work out which is the best to repay. If you want to save the most money then you will need to calculate which of the debts is costing you the most money and that will allow you to know which is dearest and you can start repaying that one first. However, you may feel that you want to repay the smallest debt first as you can eliminate it more quickly and that will give you a sense of achievement which you can carry when you tackle the next debt. If you think this will work for you then it is worth a try. Also, you may have personal reasons for just wanting to repay one first and so that might be the one you are more motivated to repay.