You have lost control of the bank account and now you are thinking how to get rid of the overdraft debts? Well … many people think that overdraft is a practical credit service because it is available in the bank account and then ends up using it and winding up financially due to his high interest rates.
And the problem starts when you get your money, covers the negative balance of the overdraft, but you run out of money again. So starting a vicious circle can ruin your financial life in no time.
But, we’re here to help you not get through this situation, or, whether you’re already having this problem to get out of it and get back on track with your bank balance.
Stay with us and check out the tips we have prepared for you to get out of the overdraft once and for all and learn to save money!
Beware of the overdraft trap
Banks know that unforeseen financial events happen all the time. That’s why they release the overdraft for their customers. You may believe that your bank is worried about you and wants to be legal.
But in fact, by making the overdraft, the bank’s purpose is to make a profit. And in the case of overdraft, the interest rate can reach 15% per month.
To get an idea, suppose you use $ 900 of the overdraft for 30 days. At a rate of 14% per month, you would pay R $ 126.00 for this loan plus accruals.
For those who are already in a delicate situation, having to shell out more money is not a good choice. Although overdraft seems to be the only way out, you may want to look for cheaper lines of credit.
How does the overdraft work?
Have you ever loaned anything to anyone without being sure of the return? Certainly. When the customer uses the overdraft, he does not offer any guarantee to the bank.
Interest is high because it is the only way for the bank to recover some loss. To better understand what happens when you use credit, let’s go deeper into how the overdraft works:
- Calculation of interest: interest on overdraft is calculated using compound interest (interest on interest). For this reason, debt grows rapidly and you do not know how to get rid of debt.
- IOF: the Tax on Financial Operations (IOF) has monthly payment, but its rate (rate) is daily (0.38% + 0.0082% per day).
- Payment: The collection of the interest of the overdraft + IOF is monthly. The bank informs the date that the debit will occur in the current account statement.
- Limit: The overdraft limit is made available according to the customer’s profile. The threshold value may increase over time.
- Non-compulsory: Overdraft is a non-compulsory credit service. The bank may refuse to offer the service. The customer can cancel the overdraft.
- Total balance: The total balance of your bank account appears with the overdraft limit and causes the false sense that you have more money.
- 10 days free: Some banks offer a 10 day “free” check, but if you cover the balance on the 11th day, you pay interest for 11 days of use.
How to get rid of debt overdraft?
If you want to get rid of overdraft debt, do not just count on the money that will fall into your account. You may even be able to keep a positive balance temporarily, but if it is not enough for your budget, you will need to use the overdraft.
To exit the overdraft definitely, choose one of the following alternatives:
1) Parcel overdraft (negotiation)
To get out of the overdraft debt, you can request the installment of the negative balance, ie a debt negotiation. If you choose to pay the overdraft, the bank will temporarily suspend the service.
This means that, for a while, you will not be able to count on the overdraft, until you clear all the installments. After that, there is little chance of recovering the same limit.
Pros : It’s a way to educate yourself financially, because you will have to comply with the agreement and will not be able to rely on the bank’s money – not in the overdraft mode. You will also be able to see your true bank balance more clearly and have to control your spending better.
Cons : Splitting the overdraft can double the amount of your debt. This is because, in fact, the bank “lends” more money to cover the negative balance. In installment, the credit service is suspended and may even be canceled. If there is an unforeseen event, noncompliance with the agreement may worsen the situation.
2) Pay the overdraft
Paying the cash overdraft is the best way to get rid of debt. But in addition to covering the negative balance and paying the overdraft interest, you need to have more money to not use the service again.
You can apply for a personal loan, which has lower interest than the overdraft. It’s the simplest way to get out of overdraft, without tightening your budget.
Pros : When applying for a personal loan to pay off the overdraft, you choose to exchange the expensive debt for a cheaper one. Compare overdraft and personal loan interest rates . You will be able to cover the negative balance, pay interest on using the overdraft and still leave the balance of your account super positive.
Cons : There is no downside to paying off the overdraft debt because you choose to get away from the high interest overdraft. You can take the time to cancel the service and not run the risk of falling into the trap of overdraft. You will also need to save more from now on.
Special check: how not to borrow more
You can even stay with this credit service if you wish, but to avoid overdrawing with the overdraft, save and save money for emergency situations.
Create a goal and grow as you can. To make it easier, sign up for automatic transfer of a certain amount to your savings account, on the date of your salary payment. So you do not run the risk of not being able to save money.
This is the only way to no longer need a overdraft: creating a financial reserve. And if you need more money, consider a personal loan, with installments that fit in your pocket and do not weigh in your budget.
How to save money?
Cutting or cutting expenses to save money is not an easy task. But to organize the accounts and get out of debt , economics and discipline are the keywords.
If you’re still not sure, check out 9 reasons to keep spending up . Good Credit knows the need to keep your pocket balanced: see a list of 100 days to save you money .
Also check out 70 practical tips for making money . And to keep up with personal finances, learn how to track your debt .
And you already know, if you need help, count on Good Credit. We want to be present at every stage of your life.