Overdraft Debt

If you've got a bank overdraft, it pays to be aware of the harsh way that banks can treat their customers.

They might call it a "free" overdraft, but nothing could be further from the truth. Okay, so they won't charge you an arrangement fee to let you borrow from them or a renewal fee to let you keep borrowing fro them. But that doesn't mean that the loan is interest free. Oh no, they'll still want their 20% APR for your "free" overdraft.

Rather misleading, isn't it?

Well that's just the start of your problems if you fall into the overdraft trap.

The other great danger is that you mistakenly borrow more than the bank has agreed to. That's when their unauthorised overdraft rules come into play. And they're even tougher than the normal rules. As if they weren't harsh enough already.

And just to give you an example of the severity of these rules it has been calculated that banks in the United Kingdom earn £3 billion each year through charges and interest on unauthorised overdrafts. That's more than £50 per person living in the UK!

So let's say your overdraft limit is £250. You spend some money and find yourself overdrawn to the sum of £251. One pound more than agreed. So their computer spits out a warning latter and charges you £25 for the privilege. So now you owe £276, which is being charged interest at perhaps 20% APR.

And you'll probably find that you have to pay a charge of £5-10 for every transaction that your account handles while you remain in unauthorised overdraft. So if you have any regular payments made from your account (eg direct debits, standing orders etc), you'll have more penalty payments added to your debt.

And then there's the unauthorised overdraft fee to consider. Many banks will charge you £30 a month for running an unauthorised overdraft. So you reach the position where your overdraft reaches £300 or more just becuase you want £1 over your limit.

And if you can't bring it back down to an agreed amount by the end of the month, you'll face another round of financial punishment. Some banks even increase their unauthorised overdraft fee each month that you remain over the agreed limit. So it might be £30 in the first month, then £75 in the second month, £120 in the third month and so on.

Part 2: Dealing with your overdraft

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