Many of us have overdrafts and the bank or building society will set the credit limit, meaning that we will only be able to borrow a certain amount. However, at times, they might offer us the option of being able to make that amount larger or we might consider requesting one or even switching to a bank that will give us a larger one. However, it is worth thinking this decision through carefully as it may not be the best for us.
If we have more money available to us, then it is very likely that we will spend it. This means that we will have to pay more out as we will pay interest on the overdraft as soon as we take it out. We need to think hard about whether having the extra money will be worth it. If we think that we will be tempted to use it when we do not really need to, then we might end up paying out a lot in interest which we could have avoided by not taking the opportunity to have a larger overdraft.
Peace of Mind
It could be that having the opportunity to borrow more money could mean that we will feel better. Knowing that we have access to money if we need it could give us peace of mind. If we suddenly need money, then we may not have the time to arrange a loan and knowing that it will be there if we need it could help.
When you borrow money it will show up on your credit record. This is not always a bad thing, if you can show that you are repaying your debts. However, with an overdraft, there are no regular repayments or pressure to repay, which means that there is a possibility that the debt could go on for a long time. This means that you need to be aware of this and make sure that when you do borrow money using the overdraft, that you do have a plan for repaying it and make efforts to do so as soon as you can. An overdraft will be repaid as soon as money gets paid into your current account. This means that when you next get paid it will be paid off but you need to think about whether that money will be enough to repay the overdraft and leave enough to pay for everything else that you need to buy as well, or else you could end up having to go overdrawn again. If you do this each month, you may get to the stage where your salary is not enough to repay the overdraft and there will be nothing at all to pay the bills, so make sure that you are careful.
Some people feel that an overdraft is their money to spend. That they can go on a spending spree and treat themselves to all sorts of things with it. What they do not think about is the fact that the money is a loan and belongs to the bank and not to them. Not only does it need to be repaid but it will also be charged for. This means that for as long as people are in debt, they will be being charged interest and therefore paying for the privilege of having this extra money. It is therefore wise to think about whether you are likely to be the sort of person that will spend it like this or whether you will be sensible and just leave it for emergencies and use that to help you decide whether it is a good idea or not.