Having an overdraft facility on your credit card is a huge responsibility – especially since, if managed poorly, you can land yourself in too much debt.
We have a look at whether there’s a one-step-fix-all action you can take to ensure it’s managed effectively, and we then consider some general guidelines you should keep in mind.
Tip: You should consider debt consolidation if you’re overindebted.
Is there an ultimate trick to managing an overdraft?
According to Sebastien Alexanderson, CEO of National Debt Advisors, there is no “secret path” to managing your credit card and overdraft any more than there is a secret to success.
“It takes hard work, and it’s important to make legacy decisions when considering spending money that you don't have in the first place. What this means is that you shouldn’t put yourself in a compromised situation where you are spending money that you don’t have,” says Alexanderson.
That being said, there are useful guidelines you ought to consider when you work with your credit card overdraft, as follows.
1. Pay your debt each month
Alexanderson says that if you do find yourself using the emergency reserve, try to make sure you pay it off completely at the end of every month.
“If you can’t do that, try to pay off as much as you can. The banks lend you as much as they are legally allowed to and the repayments consist of mostly interest. If you only pay the minimum, you will never be out of debt,” he says.
2. Keep tabs on your bank account
You can download bank statements online or through your bank’s mobile app, and you can set up SMS or email notifications when you make withdrawals.
By doing this, you will be able to stay on top of how much you spend, and how much you owe. This will assist you with financial planning and prevent you from falling too far into debt.
3. Include your overdraft in your budget
If you prepare a budget for the coming month without considering your overdraft dues, you will find a nasty surprise waiting for you. By preparing for this cost you can ensure you don’t spend money on unnecessary luxuries before you have settled your obligations.
Managing an overdraft is not complicated, but you need to take an active role in making sure your debt is settled. If fail to do this, you will be charged an excessive amount of interest, which could send you straight into a debt spiral.
If you’re already struggling to manage your debt, get help with debt consolidation today.