By making use of a credit card, you can cut the cost of your overdraft debt dramatically.
You'll have seen many companies vying to offer you 0% balance transfer credit card deals, which enable you to transfer debt from one card to another.
The idea is to save yourself a lot of interest and use those savings to pay your debt down faster. The purpose for the card provider is to hope you stumble along the way and end up spending more, paying penalty charges, or otherwise trip on the small print.
Transfer your overdraft to a 0% card
A handful of credit cards extend the same potential rewards and temptations by allowing you to move your bank overdraft to them.
The longest 0% term comes from Virgin Money, which allows you to transfer your overdraft to the card and not pay any interest for 26 months. You'll have to pay a transfer fee of 4%.
There's also the Fluid card, which offers a 24-month 0% period, again for a 4% fee, while for a much smaller 0% period there's the AA credit card, which boasts a 12-month interest-free period for a 4% fee.
The price of a free deal
So, with the Virgin Money card, you swap your overdraft for a 0% credit card lasting more than two years. As usual, 0% doesn't mean free, but it does mean cheap. You don't pay interest, but you do pay a 4% overdraft transfer fee up front, which is £40 per £1,000 of debt.
How this compares
There aren't too many ordinary bank accounts currently available to new customers that offer substantial overdrafts more cheaply than that for anything more than a few months. Usually, overdraft interest rates are four times higher.
[SPOTLIGHT]If you can't repay the entire debt in 26 months, you're likely to be even better off switching to a 0% credit card deal, because the overdraft will be far more costly still.
An account charging 19% interest, is likely to cost you around £300 per £1,000 you still have outstanding at the end.
However, even at 19% interest, if you can get completely clear of your overdraft inside three to five months there will be no point switching. This is because interest isn't all taken up front, like the cards' fees. It's spread out over the year.
These days, many bank accounts don't charge you a standard interest rate. Instead you pay a fee of £1 or £2 for each day you're in the overdraft. If you need time to get completely clear of your overdraft, this is likely to cost something near the 19% figure than the cards' £40 fee.
Play your cards right
All the usual rules of using cards apply. This mostly means avoiding the worst small-print traps. You can read about many of them in How to use credit cards for transfers and new purchases.
This is extremely important and many people fail here: you have to have a plan in place to stay out of your overdraft and pay down your card debt after you have shifted it, or you'll just end up building the overdraft up again, on top of the card debt.
This means you have to budget properly and keep spending diaries, write shopping lists to avoid temptation, do whatever it takes to avoid whatever got you into your overdraft in the first place, or from another of life's many emergencies leading you back there.
If you're in your unauthorised overdraft, or have been in the past few years, it may be difficult to switch to one of these credit cards, due to a damaged credit record. It might not hurt to see what an impartial debt professional thinks your best solution is at National Debtline, Citizens' Advice or the Consumer Credit Counselling Service. Read Get debt advice for free for more.
This is a classic article that's been updated