Let's face it, bank overdrafts are EXPENSIVE. Once you've been pulled in, it can feel like you'll never be able to drag yourself back out. With the average overdraft fee standing at around 30% - it's not hard to understand why.
Well here at Chip, we're dedicated to helping you out. Not like the banks are 'helping you out' but really helping you out.
If you google “how to get out of my overdraft” you get pages and pages of advice telling you to scrutinise your bank statements, create various spreadsheets, curb your spending and monitor your progress month by month. Chip is here to tell you that you don’t need to do all that stuff. We’ve found another way. We call it the Chip overdraft escape route.
So here it is... The Chip overdraft escape route
Getting out of your overdraft requires a totally different approach to paying off a credit card or personal loan. An overdraft is instant, easy and flexible – but it’s also a slippery slope. Getting stuck in the overdraft cycle is a horribly easy mistake to make; you end up borrowing slightly more each month until payday barely takes you above zero. Without monthly repayments to make, it’s really hard to reduce your overdraft debt gradually.
Being stuck in your overdraft is no fun. No fun at all. We at Chip know this, because we’re in our early twenties and we live in London and we’re not on corporate salaries (cheers, boss). However, we’ve been using Chip since we launched it in September 2016 and we’re here to tell you that we’ve found the escape route. If you want to get out (and stay out) of your overdraft, just follow these three steps and we swear you’re golden.
1. Realise you’re using your overdraft
According to data collected by the CMA. Of every ten people who go overdrawn regularly, four of them have no idea that they’re using their overdraft. It’s hardly surprising; no one enjoys checking their bank balance. In the week before payday, most of us choose to bury our heads in the sand. But that’s a problem if it means you’re spending money you don’t have.
If you’re using your overdraft, you need to know about it. You also need to have a rough idea how far overdrawn you go in a typical month. However, we know it hurts to look – which is why we email you when your balance is low. Then, if you’re overdrawn and Chip can’t save for you, you get a notification to let you know what’s going on.
2. Keep your saving habit
This is the crucial step. We’ve found that saving is the key to successful overdraft escape. It’s really hard to try and spend slightly less – and leave slightly more in your account – each month. It’s especially difficult when your online banking is busy tempting with so-called ‘available balance’. But you can keep saving automatically and steadily build up a stack of money in your Chip savings account. You won’t even miss the money, and we found that we built up savings without increasing our overdrafts.
You need to set a Chip goal for the amount you usually go overdrawn each month. Then you need to switch on overdraft saving. As long as your bank account has an arranged overdraft facility, you can keep saving when your account is overdrawn. You’ll see an ‘Overdraft’ tab in the side menu – just flick the switch to enable overdraft saving, and use the slider to set how much of your overdraft you’re happy for Chip to use. This can be anything up to your arranged overdraft limit and you can adjust it any time.
3. Enjoy that cash injection
Just sit back and wait to hit your goal. Chip will save for you automatically and you’ll hardly notice it happening. You might not borrow exactly the same amount each month, but for most people it’s broadly consistent month by month. If you need to adjust the goal to save up a bit more or a bit less, you can edit it any time in the app.
Once you hit that goal, it’s go time! We found that the best strategy was to wait until the last day before payday (or whenever you’re most overdrawn) and then withdraw your Chip savings straight into your current account. Enjoy that amazing cash injection, and see the numbers change from red to black. Hopefully, you’re back to zero (or just above) so that when you get paid you can start from scratch – without using your overdraft.
Remember: clock the fact that you’re in your overdraft, set an ‘Overdraft’ goal, turn on overdraft saving and then sit back and wait. Good luck guys!