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Overdrafts: cost of debt increases

28/07/2009

Some banks and building societies are increasing the interest rate they charge on overdrafts, with some rates approaching 20%, The Independent reports.

Many people who go into debt through an overdraft also face daily charges based upon how far they are `into the red` - with some people facing overdraft fees in excess of £300 per year.

Andrew Hagger, of moneynet.co.uk, said: "This increase will hit customers who are becoming ever more reliant on their overdraft facility during the downturn, especially those who have to work reduced hours or accept a lower rate of pay to keep their job."

A spokesperson for Debt Advisers Direct commented: "People who often find themselves using their overdraft to pay for day-to-day living costs may well end up in more debt due to higher interest rates and daily charges.

"It would make sense for someone in this situation to look for an account with the lowest possible charges, minimising the risk of their debt becoming unmanageable.

"Plus, people who are forced to go into debt to pay for essentials may need to review their whole financial situation. They may benefit from professional debt advice."

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Debt Advisers Direct offer free debt advice and a range of debt solutions, including debt management plans, debt consolidation loans and IVAs (Individual Voluntary Arrangements).

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