Yes, you can include a bank overdraft debt in a Trust Deed.
In fact, not only can you include a bank overdraft debt in your Trust Deed, but the outstanding balance will automatically be included as one of your creditors.
Sometimes clients that we speak to believe that a bank overdraft isn’t a real debt. Perhaps because they service the debt on a regular basis, as their wages and other income go into the account, it may take at least a couple of weeks before it either starts to become partially overdrawn, or more commonly, reaches the authorised overdraft limit.
Bank overdraft debts are one of the more common debts types that will be included in a Trust Deed or DAS (Debt Arrangement Scheme), alongside credit card debts, unsecured loans and many others.
Bank overdrafts are an expensive way to borrow
You may consider that the bank overdraft facility is like a financial buffer for you, a very convenient form of borrowing but it’s feasible that the bank can request full payment of the bank overdraft debt at any time ‘upon demand’
And, most crucially for people who are already struggling with their finances, an overdraft can become a very expensive form of borrowing with penalties and high-interest rates.
Research from Compare the Meerkat in August 2020 found that almost 33% of us are relying on an overdraft to get us through the Coronavirus pandemic. The average amount owed on their bank overdraft debt is in excess of £500.
In June 2019, the FCA introduced new rules on overdraft lending to help stimulate a fairer, simpler and more transparent overdraft market.
In reality, the move to help people who have bank overdraft debts ultimately backfired as the likes of Lloyds, Barclays, Royal Bank of Scotland, HSBC, Halifax, Clydesdale Bank and others hiked-up their interest rates to almost 40% and up to 50% in some cases.
However, since these new rules only started during lockdown when they also instructed banks to offer interest-free overdrafts, many customers of banks may not yet realise that the costs for using an arranged overdraft will be even more expensive than using credit cards.
Payment breaks coming to an end
Where people in Scotland are still furloughed, or have been made redundant and are already taking advantage of payment breaks, replaced by tailored support; expenditure may suddenly become overwhelming.
If you are in a payment break that is due to end, our advice is to contact your lender(s) and ask what options you have for ‘tailored support’
If you have unaffordable debts in addition to your bank overdraft debt then we would also advise you to speak to a qualified money advisor such as Trust Deed Scotland®.
In order to apply for a Trust Deed, all unsecured debts must be included and it is normal that if you bank with a provider who is also a lender, then you will need to open a new bank account with a lender whom you do not owe any money to.
The good news is that it’s very easy to open a new basic account while in a Trust Deed, with a number of options open to you. Find out more about the best bank accounts for Trust Deeds.
If you have a joint account, then you will need to remember that the other party becomes fully responsible for payment of that debt.
Can you get a new bank overdraft when a Trust Deed has ended?
Yes, once you have completed your Trust Deed, you will be free to start rebuilding your credit again and after a period of credit rating rehabilitation, you will be free to apply for a bank overdraft again.
It’s true that bank overdrafts can make our day-to-day lives much easier. An unused bank overdraft may seem like the best option in the event of the ‘rainy day’ that may occur.
But there is incontrovertible evidence that bank overdraft debts can once again develop due to poor affordability checks, which become self-regulated. No sooner, have you started to encroach your overdraft limit, than other debts such as credit cards, loans and the cost of living itself can sometimes put you in a precarious position.
What’s the difference between an emergency fund and a sinking fund?
For clients of Trust Deed Scotland® who have gone on to enjoy life after debt, most often they will take the monthly contribution that they had paid into their Trust Deed and instead create a savings accounts that will be used as an emergency fund and a sinking fund.
Essentially an emergency fund is what it sounds like. An allowance to cover a sudden emergency such as car repairs, anything that was unexpected.
A sinking fund is more a way of budgeting for expenditure that we know will occur.
These may be one-time purchases such as a new computer, or phone. A car, or a deposit for a home. Events such as weddings and graduations, or recurring expenses such as car insurance or Christmas.
The added benefit of creating a savings account instead of an overdraft is that you will accumulate interest on the amount. Research online and find a savings account that suits your circumstances. While the easy answer may appear to be the account that offers the higher rate of interest, in real terms, these savings accounts are offered with penalties for early withdrawal etc, so always do your homework on them before committing.
Help with bank overdraft debt in Scotland
If you’re worried about bank overdraft debt in Scotland, or indeed any other type of debt – you can contact Trust Deed Scotland today for qualified advice.
We offer expert debt help in Scotland and have helped over 25,000 people in Scotland since 2009.
Thousands of people have left debt advice reviews where our clients tell us in their own words that our advisors are friendly, non-judgemental and that our advisors were able to find a solution to their debt problems quickly and efficiently.