Seeing Red: Get a Hold of your Overdaft

Even if you are the most efficient and careful of financial planners, sometimes what you have in your account might just not cover your needs. In cases such as these spending more than you’ve got and letting the bank help you out can seem simple and easy way of borrowing money. But, as you will soon discover, going into overdraft without receiving permission from the bank first can lead up to you getting a nasty shock when you receive your bank statements at the end of the month.

According to popular opinion when bulls see red they go into high alert status, the same should be true for you. Seeing red means going into overdraft. In other words- spending more than you’ve got in your account. Whether you realize it or not, when you are doing this you are in fact borrowing money from the bank. This may be a convenient way of borrowing money but it’s certainly not something you should do without fully understand the implications of such a decision. There are two ways of doing this, authorized and unauthorized.

Going into an unauthorized overdraft (i.e. without the banks permission) is really not a good idea. When you spend the banks money instead of your own and you do so without asking first you are likely to run into extremely high interest rates. You will be heavily penalized for this kind of action.

Asking the bank for permission to go into overdraft is certainly wiser. When you receive authorization from your bank to see red, you pay half the interest rate you otherwise would and avoid penalization and other un-pleasantries. If going into overdraft is an option for you its worth your while to shop around for a bank whose interest rates best serve your borrowing needs. Finding a bank that is suited to your needs can make a significant financial difference.

It’s important to understand that borrowing small amounts of cash for short periods of time can become very unattractive when you think of the high interest rates. There are often monthly fees and arrangement fees on top of the interest rates, which can really make your charges far higher than you had planned for. Don’t forget, you must have a well-planned schedule for repayment in order to get yourself out of debt as quickly as possible. It becomes increasingly difficult over time to escape from seeing red routinely.

Overdrafts have their pros; they’re a convenient and almost automatic way of borrowing money and possibly a good answer to borrowing small amounts of cash in the short term. For a substantial amount of money and for a longer period of time they do not provide a sound solution.

As always with finances in the question of overdraft versus loan it’s important to be well informed. You must consider that a personal loan may be a less expensive and more effective option for you than going into overdraft. Building a structured plan for repaying the loan and finding one that best suites the amount of cash you need for the amount of time you need it might be the best way to help yourself out.