How to Pay Off Overdraft Debt in the UK — The Practical Guide
UK arranged overdrafts commonly charge 39.9% EAR — that is often higher than a standard credit card, and much higher than a personal loan. If you are dipping into your overdraft every month and only paying it back as wages arrive, you are renting money at one of the most expensive rates available. Here is how to model it, prioritise it, and get rid of it for good.
Why overdrafts are so expensive: EAR explained
Before 2020, UK banks quoted overdrafts as a daily fee (e.g. 1p per day per £6 borrowed) — making true cost almost impossible to compare. The Financial Conduct Authority changed that in April 2020: banks must now quote a single Equivalent Annual Rate (EAR), so you can compare the cost directly.
EAR works the same way as APR for credit cards: it represents the total annual cost of interest if you kept the same balance for a full year. A 39.9% EAR overdraft on a £1,000 balance costs roughly £399 per year in interest — about £33 per month — just to stay in the red. You are not reducing the principal at all.
| Bank (illustrative typical rates) | Arranged overdraft EAR | Monthly cost on £1,000 |
|---|---|---|
| Major high-street bank A | 39.9% | ~£33/month |
| Major high-street bank B | 39.9% | ~£33/month |
| Major high-street bank C | 35.0% | ~£29/month |
| Some challenger banks | 15–19% | ~£13–16/month |
| Typical credit card APR | 20–25% | ~£17–21/month |
Rates are illustrative examples based on typical published rates as of 2026. Check your actual account terms for your precise rate.
The real cost of ignoring an overdraft
Many people treat an overdraft as a fact of life — wages clear it at the end of the month, then it fills up again. But the interest charge still runs every day you are in debit, even if the balance goes up and down. Here is what that looks like over time if you never actively pay it down:
Interest paid while never reducing the balance — more than the original overdraft amount.
Three years of staying in the red costs more in interest than clearing it in full today.
Clear with targeted extra payment. Total interest drops to roughly £260 — saving over £1,500 vs doing nothing.
Move to 0% money transfer card (3% fee), repay over 24 months. Near-zero interest if cleared in time.
Important: These are illustrative figures based on simple interest at stated EAR rates. Your actual costs depend on your bank's exact charging method, whether they compound daily or monthly, and any fees. Always check your account terms.
Should you pay off your overdraft before credit cards?
In the debt avalanche method, you rank every debt by its annual interest rate and direct extra cash at the most expensive one first while paying minimums on everything else. For most UK borrowers, this means:
- Overdraft at 39.9% EAR → highest priority
- Store card at 34.9% APR → second priority
- Credit card at 22.9% APR → third priority
- Personal loan at 9.9% APR → last
The calculus changes if you have a 0% credit card with a promotional period still running — in that case the card's effective rate is 0%, so you ignore it until the 0% expires and focus on the overdraft and other high-rate debts. Always enter your current rates, not promotional ones that have already expired.
You can model your overdraft in the free calculator by adding it as a debt with the EAR as the rate and a fixed monthly "payment" that reflects what you can realistically put toward it each month. It will show you exact interest and payoff date alongside your other debts — and the avalanche priority order falls out automatically.
Five steps to clear your overdraft
-
1
Get the full picture
Log into online banking and note your overdraft balance, the exact EAR, and your current pattern (are you in the red all month, or only briefly?). If you are consistently spending more than you earn, the overdraft is a symptom and you need to look at income and spending before anything else — the free services at the bottom of this article can help with that.
-
2
Stop adding to it
Even a small reduction in monthly spending can break the cycle. Common wins: move direct debits to just after payday so your balance does not go negative waiting for wages; set a "bills pot" or separate account so spending money and commitments do not mix; cancel any unused subscriptions immediately rather than "reviewing later".
If your overdraft fills up every month because income simply does not cover essentials, that is a different problem — a MoneyHelper budgeting conversation is the right first step.
-
3
Set a fixed monthly payment to reduce the balance
Treat the overdraft like a loan: decide on a fixed monthly amount you will pay above the interest charge to reduce the actual balance. Even £50 a month above interest on a £800 overdraft at 39.9% EAR clears the balance in around 13 months and costs roughly £170 in interest total. Compare that to "clearing it when I have spare cash" — which often means it never falls. Set a standing order so the payment happens automatically.
Starting balance EAR Monthly extra above interest Time to clear Total interest £500 39.9% £25/mo ~26 months ~£108 £500 39.9% £50/mo ~11 months ~£46 £1,000 39.9% £50/mo ~26 months ~£216 £1,000 39.9% £100/mo ~12 months ~£95 £2,000 39.9% £100/mo ~28 months ~£487 £2,000 39.9% £150/mo ~17 months ~£273 Approximate figures. Use the calculator with your exact numbers for precise results.
-
4
Explore cheaper borrowing (if your credit allows it)
If you have a reasonable credit score, you may be able to move the overdraft to a lower-rate product and pay it off with less interest leaking away:
0% money transfer credit card — a specialist card that deposits money directly into your current account to clear the overdraft. You then repay the card interest-free during the promotional period (typically 12–24 months). One-off fees of 2–4% usually apply. For a £1,500 overdraft, a 3% fee is £45 — compare that to the hundreds you would pay in 39.9% EAR interest. The critical condition: you must have a plan to repay the full balance before the promotional period ends, or it reverts to the card's standard APR. MoneySavingExpert maintains a regularly updated comparison of money transfer cards at moneysavingexpert.com/credit-cards/money-transfer/.
Low-rate personal loan — if you can get an unsecured personal loan at 6–10% APR, that is dramatically cheaper than 39.9% EAR. The fixed monthly payment also forces you to clear it on a schedule. The risk: do not leave the overdraft facility open and re-use it after clearing it with the loan. Cut the limit or close it.
Bank switching bonus — some current account switching deals offer £100–200 cash. Used strategically, this can reduce a small overdraft balance immediately. Check eligibility and tax treatment of any bonus before switching.
-
5
Once clear — reduce the limit
An overdraft facility that exists is a facility you can fall back into. After clearing the balance, call or message your bank to reduce the limit incrementally — first to £500, then to £0 if you can. Many banks allow this online. This removes the safety net that was keeping you in debt and forces a new spending behaviour. It also improves your credit utilisation calculation slightly (lower available revolving credit that you are not using).
Overdraft vs other debts: the avalanche priority question
The question "should I pay off my overdraft or my credit card first?" has a clean answer in the debt avalanche framework: whichever has the higher rate gets the extra payment. The rate comparison is usually straightforward:
| Debt type | Typical UK rate | Avalanche priority |
|---|---|---|
| Arranged overdraft (high street) | ~39.9% EAR | Usually highest priority |
| Store card / catalogue credit | ~34–40% APR | Often tied with overdraft |
| Standard credit card | ~20–29% APR | Second or third |
| Personal loan | ~6–15% APR | Lower priority |
| 0% balance transfer card (active) | 0% | Lowest priority until 0% expires |
| Arranged overdraft (challenger bank) | ~15–20% EAR | May fall below credit cards |
To model your exact situation — overdraft alongside credit cards and loans — enter each as a separate line in the free calculator. The calculator sorts the attack order for both avalanche (highest rate first) and snowball (smallest balance first) and shows you total interest and debt-free date for each method. It does not matter that one is called an "overdraft" and another a "credit card" — the maths only cares about the numbers.
When the overdraft is a symptom, not the problem
If your overdraft refills every month because your income does not cover your essential outgoings, extra payments and 0% transfers will not fix the underlying issue. If that is your situation, the most useful first step is a free, structured conversation with a debt charity. They can help you look at the whole picture — benefits entitlement, priority debts (rent, council tax, utilities), and whether a formal solution such as a debt relief order is more appropriate than an informal repayment plan.
These services are always free to use, completely confidential, and authorised by the Financial Conduct Authority:
- StepChange Debt Charity Free debt advice by phone or online. Can arrange debt management plans and formal debt solutions. FCA-authorised.
- National Debtline Free helpline and self-help resources for people in England, Wales, and Scotland.
- Citizens Advice — Debt and money Free, confidential advice in person, online, or by phone. Available across England and Wales.
- MoneyHelper Government-backed debt guidance and referrals. Impartial — not selling you anything.
Key takeaways
- UK arranged overdrafts commonly charge 39.9% EAR — often the highest rate in your household debt portfolio, and a top priority for the avalanche method.
- Staying in the red and waiting for wages to clear it means you pay interest every single day without reducing the balance — over three years on a £1,000 overdraft, that is around £1,200 in interest for nothing.
- A fixed extra monthly payment above the interest charge, directed specifically at the balance, is the fastest self-managed route to clearing it.
- A 0% money transfer card can eliminate the interest cost entirely — but only if you repay the full amount before the promotional period ends.
- Enter your overdraft in the free calculator alongside your other debts. The avalanche order emerges from the rates — no guesswork needed.
- If debt is affecting your wellbeing or you cannot see a clear path forward, the free debt advice services above are the right first call.