Should I Apply for a Larger Overdraft?

If you have an overdraft on your checking account you may sometimes feel that it is not large enough. It could be that you would borrow more money if you could or that you are borrowing more than you have been given and this means that you get charged more money for using an unauthorised overdraft. You may feel that a solution to this problem would be to get a larger overdraft. There are advantages to doing this but there are also disadvantages. It is therefore worth considering these as well as any possible alternative solutions.

Advantages of getting a larger overdraft
The larger overdraft will allow you to borrow more money. This could help you out of a tight spot and will be cheaper than relying on an unauthorised overdraft. These can be considerably more expensive. It could therefore be a way of saving you money if you normally go beyond your agreed overdraft limit. It can also allow you to have more money to cover the things that you need to buy.

Having more money available can give us a feeling of freedom and take away the sense of worry that we might have associated with the fact that we did not have enough money available to us.

Disadvantages of getting a larger overdraft
The problem with having a larger overdraft is that you may be more likely to use it because you know that it is there. Normally you may be put off spending too much because you know that you are limited on how much you can borrow. Therefore, you may budget more, cut back and generally try not to overspend. With extra money available you may become tempted to spend more than you really can afford.

It can be easy to forget that an overdraft has its costs. It usually has interest and a fixed cost which means that you pay twice for it. The longer you are overdrawn; the dearer it will be as well. Although an unauthorised overdraft is dearer, it is worth remembering than an overdraft is still an expensive way to borrow money.

Getting into the habit of using your overdraft all of the time is not good either. It will mean that you will almost always owe money and this will not only be expensive but it will mean that eventually you will be in a situation where you need more money and you will not have any overdraft left to spend. Even an unauthorised overdraft is not limitless as you bank will eventually put a hold on your checking account and not allow you to withdraw money or write checks.

The best solution is to start budgeting well, living within your means and no longer going overdrawn. Obviously, this is not as simple as it sounds, but if you start making changes to your spending habits and try to find ways to earn more money, then you will be able to find ways that will enable you to spend less money.

It may be that you need a solution in the meantime. While you are working on how you can spend less and earn more you may need to find a cheaper way to borrow money. There are many loans that are cheaper than an overdraft and so you may be able to get out one of those and then you will be able to repay the expensive overdraft. Of course, you will then have to make sure that you have enough money to keep up with the repayments on that loan. Before you take it out find out how much the repayments will cost and then work out carefully how you will be able to afford them. If you normally go overdrawn then this indicates that you have trouble making ends meet. Therefore, you will need to find a way to make sure that you can afford all of your essentials and the loan repayment. Come up with a strategy, a back up plan and the determination to be able to keep going with it until the loan is repaid. You also need to be aware of the fact that if the interest rate on the loan increases (perhaps if it is a variable loan and the prime rate goes up) then you will need to find more money in order to cover the repayments.

It is a big decision and it is important to make sure that you think through what will work best for you. Borrowing month to month is not something that can be sustained indefinitely as you will eventually run out of money to borrow. This means that you need to find a way to manage the money that you have. This might mean that you need to borrow more money in the short term but you will need to find a way in the long term of being able to repay it all.

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