Being a good girl, I was reviewing my money recently and was rather confused. Looking at what I received in redundancy pay, what I had paid off in debt and what I recall spending from January, there was nearly £2,000 that I could not account for. This really worried me, I was pretty tight with my money during my period of unemployment, I just couldn't work out where that money had gone. Then I realised - I had paid off my overdraft.
I have been in my overdraft for years. It was £1,500 so even after being paid I was usually straight back in within a week of pay day. To me being in the 'red' was normal for me. I didn't consider my overdraft to be debt. I expect there are many people reading this who are also consistently in the red or use to be. I didn't consciously plan on clearing my overdraft, once I received my redundancy pay I just saw the figure in credit and budgeted according to that.
Realising where that £1,500 had gone (the other £457 I finally remembered I had paid to my boyfriend for my share of our new bed) it made me think. I knew I paid a fee each month but I didn't know off the top of my head what it was. Looking into it, I was paying 19.9% interest on my overdraft every month, that was around £300 a year I was paying. I would also occasionally be caught out with fines of going over my agreed overdraft limit when direct debits/delayed debit card payments came out before pay day. No wonder I now feel flushed given the amount of fees I am no longer paying!
I am loving being in credit in my current account.
Going back to the avalanche/snowball methods, if you are currently paying off debt where does your overdraft fit in? Should you be paying off your overdraft compared to the other debts you are paying? Have you even considered your overdraft as debt?
If you are debt free and had overdraft debt, did you pay off your overdraft first or last?
*Image courtesy of Stuart Miles www.freedigitalphotos.net