Pay off an overdraft with a credit card

Millions of us are carrying overdrafts on our current accounts.

And - after rate rises last year and, at some banks, the introduction of daily fees - we're paying out more than ever for the privilege.

That's where these overdraft beating credit card techniques come in.

Credit cards that beat overdrafts

It's sounds unlikely but certain credit card offers can help to reduce overdrafts significantly.

Certain deals can help those looking to repay an overdraft debt in full and for good. Others are best suited to those who are just trying to stop dipping into the red every few months.

Here are three techniques in more detail.

1. Pay off the overdraft at 0%

"Super balance transfer" credit cards are great credit cards for overdrafts because they offer a limited period 0% rate on balances transferred to a current account - see a full explanation here of this type of transfer.

Just as with a normal 0% balance transfer deal, the offer allows cardholders to pay off a high interest debt without the interest.

However, as you can see in the examples below, there is a fairly hefty fee to pay for moving the credit card balance to the overdraft.

For this reason, and because the 0% period only lasts for a limited period, it's essential that you do the sums and make sure that first, you'll be able to pay off interest free and second, if it will really save you money.

Here are some super balance transfer options:

For money transfers:	0% Period	Fee	Additional
AA Balance Transfer	0% for 16 mths	4%	-	Go to provider
Representative Example: 17.9% p.a. variable on purchases. This is equivalent to 17.9% APR representative variable based on a credit limit of £1,200. The AA Credit Card is arranged by AA Financial Services Limited (AAFS). Registered Office: Fanum House, Basing View, Basingstoke, Hampshire, RG21 4EA. The AA Credit Card is issued by MBNA Europe Bank Limited. Registered Office: Stansfield House, Chester Business Park, Chester CH4 9QQ.
Post Office	0% for 14 mths	2.98%	0% for 5 months on the 2nd and 3rd anniversary (2.98% fee)	Go to provider
Representative Example: 16.9% p.a. variable on purchases. This is equivalent to 16.9% APR representative variable based on a credit limit of £1,200. The Post Office Credit Card is provided by Bank of Ireland (UK) plc. Registered Office: Bow Bells House, 1 Bread Street, London EC4M 9BE.
AA Rewards	0% for 12 mths	4%	-	Go to provider
Representative Example: 16.9% p.a. variable on purchases. This is equivalent to 16.9% APR representative variable based on a credit limit of £1,200. The AA Credit Card is arranged by AA Financial Services Limited (AAFS). Registered Office: Fanum House, Basing View, Basingstoke, Hampshire, RG21 4EA. The AA Credit Card is issued by MBNA Europe Bank Limited. Registered Office: Stansfield House, Chester Business Park, Chester CH4 9QQ.

There are more super balance transfer credit cards listed in this comparison table.

2. Use a 0% purchase credit card

A 0% purchase card could help to pay off an overdraft in one of two ways.

For unexpected costs

First, if unexpected expenses threaten to pitch an account into an overdraft, a 0% purchase spending period (see comparison table) is an alternative option.

Many introductory 0% periods last for well over a year. That makes them suitable for spreading extra spending that would otherwise send cardholders into their overdrafts.

Again, though, paying off within the 0% period is essential to reap the benefits.

Pay out in interest and it's just swapping one form of borrowing for another (help here).

Additionally, this isn't really a long term solution. The 0% period will start running down from the moment the account is opened, rather than from the first time it's needed, for example.

To pay off a costly overdraft

A second way to use a 0% purchases deal is to move as much everyday spending as possible to the credit card so that money going into the current account gets straight where it's needed: paying off the overdraft.

This is pretty much the same way that some people use 0% purchases deals to make money through stoozing (guide here) except that instead of going to a savings account the cash is going to pay off the overdraft.

Again, though, paying off the whole credit card balance before the end of the 0% period is essential for this trick to not only save money but avoid ending up with the same debt placed elsewhere - so throughout the 0% period you'll need to have enough money coming in to both make payments off the overdraft and to save whatever is spent on the 0% purchases card.

3. Cautiously use any credit card to cover shortfall

According to insolvency specialists R3, 42% of Britons often or sometimes run out of wages before the end of the month.

For those going into an overdraft - particularly an unarranged one - for a week or so paying by credit card instead and paying off within the monthly interest free period (see here for an explanation of this term) could save money.

BUT, and it's a big but, this is only worthwhile if the balance is paid back in full every month.

Otherwise, just as with the deal above, doing this could just mean paying interest somewhere else and possibly at an even higher rate.

Any standard credit card would be fine for this purpose since all credit cards have fairly similar standard interest free periods.

For that reason, this overdraft beating trick may be an option for those with poor credit histories, as the standard interest free period on purchases is available on all credit cards including those aimed at rebuilding a poor credit score (see comparison table).

Whichever card is used in place of an overdraft, though, it's vital to pay back in full within the interest free period.

Additionally, remember the monthly standard interest free period only includes purchases - so unlike a debit card - the cardholder would be charged fees and interest on any cash withdrawals, foreign currency purchases etc.. regardless of when they pay back the money.

To doubly insure against the possibility of paying interest at a high rate it may be worth looking at low interest rate credit cards.

Caution

All in all, when used carefully credit cards could help cut or remove the cost of using an overdraft but those using these methods should ensure that they don't just open up another form of unpaid borrowing.

Credit cards can offer a helping hand but they're no replacement for cutting outgoings or taking other steps to cut debt.

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