How To Beat Overdraft Charges

If you're on the verge of hitting your overdraft limit, don't panic. Here's how to steer clear of the charges.

For a while, I was in a pretty sticky financial position -- and my current account was always overdrawn.

As the months went by, unexpected one-off costs -- and a second degree -- pushed me closer and closer to my overdraft limit.

In the long term, of course, the best way to sort this out is simple: Up your income, decrease your outgoings, or (preferably!) both.

However, those options aren't always available. More immediate action is often needed if you're going to dodge huge penalty charges and a dent in your credit record.

So I'm going to have a look at what you can do to limit the damage -- and the fees -- if you're about to exceed your overdraft.

Advance planning

If you think you're liable to hit your overdraft limit, it's worth doing a bit of research well in advance.

Do you have a `buffer' zone? Some banks allow you leeway of say £10 before they start charging you for being over your limit. Of course, many don't, so make sure you check with your own bank.

And what happens if your account is over its limit for a very short period of time?

For example, some banks won't charge you if you get the funds back in within 24 hours, or before the end of the next working day. Ideally, you don't want to be this close to the edge -- but it's good to know in an emergency.

Make sure you check your balance regularly. Online banking is usually the easiest way of doing this, but some lenders also provide free text message updates.

This will help ensure you don't exceed your limit -- and it will also mean you're aware of fraud or other account problems as and when they happen. 

Two weeks notice

Are you going to hit your overdraft limit in a couple of weeks? Don't panic, there's still plenty you can do:

You could apply for a credit card that allows you to make a 0% money transfer. If you're accepted, you can use one of these cards to transfer money into your current account to clear your overdraft. And with the best 0% deals you pay no interest on this credit card debt for 15 months (although there is a transfer fee).

As a last resort, have a look at what standing orders leave your account, and when. Could you arrange to shift the pay date of one of them, perhaps so it doesn't leave your account until after pay day? 

Just remember to check with the recipient first to make sure they don't mind waiting a few extra days for their money. A parent or relative may well be understanding -- but your landlord might not be!

Obviously, this sort of juggling isn't a permanent solution -- the money's got to leave your account some time.

Disaster imminent!

But what if you're going to hit your limit in the next 24 hours -- or worse still, what if you just have?

In my experience, the best thing you can do at this stage is let your bank or building society know straight away.

If possible, go into your local branch rather than phoning up -- it will show you take the matter seriously and are working hard to do something about it.

You may even be able to negotiate a temporary overdraft extension to tide you over. Just make sure you keep your spending under control and don't use this extension as an excuse to buy treats!

Budgeting carefully and living within your means should mean you don't need to operate these last minute tactics.

Five Steps To Brilliant Budgeting!, by Fool writer Cliff D'Arcy, will point you in the right direction.

Good luck!

More: How To Tackle A Large Debt | The Best Overdraft Rates In Town