Millions have been warned over ‘ghost debts’ which could see Brits forking out more than £280 every year if they’re not careful. The stark warning comes after TotallyMoney revealed almost 10 million adults are overdrawn by an average of £709
Swathes of Brits have been urged to check their accounts over so-called ‘hidden’ charges that can quickly add up. Amid the cost-of-living crisis, every penny counts – meaning dipping into your overdraft could be a costly mistake.
It comes as credit report brand TotallyMoney estimates a whopping 9.7 million adults are overdrawn by an average of £709. Due to sky-high overdraft rates, which can be near 40 per cent, this can lead to costs of more than £280 per year. Alastair Douglas, CEO of TotallyMoney warns that many customers banking with high-street giants such as Nationwide, Lloyds, Natwest, and Santander often treat their overdraft as an ‘extension to their current account’. “There’s no separate card, bank, or app – and the interest charges can get lost among their account transactions,” he said, per Birmingham Live.
The ace added: “Some might have forgotten they ever applied for their overdraft, while others won’t be aware of the interest rates being charged. It’s important to remember that an overdraft is [a] debt – in the same way that a credit card, loan, or buy now pay later agreement is – and this is especially true if it feels like you’re spending most of the month sitting in the red.”
Alastair recommends using your savings to clear your balance to get out of the ‘ghost debt’. This allows you to avoid accumulating interest and will allow you to save more ‘in the long run’. If you’re not in the financial position to clear your overdraft straight away, the expert says shopping around for a bank that offers an interest-free overdraft is a good backup plan. “Just remember that you’ll need to pass a credit check first, so check your report first to make sure everything is correct and up to date,” he added.
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At the time of writing, First Direct is offering new switchers a free £175 bonus for opening its 1st Account. This also comes with a £250 ongoing interest-free overdraft too – but anything over that will be subject to a hefty interest rate. However, there are certain criteria you need to meet to be eligible for the £175 bonus – including having two direct debits and the ability to pay in £1,000. You’ll also need to make five debit card payments within the first 45 days of opening the account – and must be a new First Direct Customer switching an account from another (non-HSBC) account.
“If your overdraft does go above £250, you’ll pay 39.9 per cent interest,” warns Martin Lewis’ MSE. “And be mindful, your old bank may ask you to pay off your overdraft within a period of time which may be sooner than you receive the £175 from First Direct.”
This article does not constitute financial advice. Always do your research and read the full terms and conditions before switching banks.
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