Anyone currently overdrawn has been issued with a stark warning by financial expert Martin Lewis.

It comes as banking brands with millions of customers are poised to hike interest rates on overdrafts to almost 40% following new rules by the City regulator.

"Cut your overdraft NOW – it's costlier than credit cards," Martin warned readers of MoneySavingExpert's weekly newsletter .

"Overdrafts are the new danger debt – double the interest of high street credit cards."

Martin pointed out that almost every bank is set to charge abound 40% interest, with Nationwide's rate changing in November and HSBC, First Direct & M&S set to hike rates on Saturday. 

"The rest will roll out imminently," he added.

And these are just the first wave of banks to move to hefty interest rates as a result of new rules.

  • MONEY TROUBLES: 'I've had to sell my car to cover HSBC's new 40% overdraft charges'

  • Lloyds, Halifax and Bank of Scotland to hike overdraft charges up to eye-watering 50%

"Last year the regulator, the FCA, ruled that from 6 April this year, all banks must replace daily/monthly fees with a single interest rate to improve transparency," Martin explained.

"It has succeeded – the new rates are transparently hideous."

Worryingly, many people will still actually pay less interest despite the move to 40% interest – highlighting just how good banks were at disguising their true costs before hand.

But regardless of whether the move will save you money or see your bills rise, the big interest rates now being charged being charged are a fantastic prompt to make sure you're not paying a penny more than you need to.

The good news is there are plenty of ways to cut the cost of your overdraft – if not clear it entirely – without actually having to find hundreds of pounds to cover it.

  • Exactly how to pay off your overdraft before new 40% interest rates kick in

The first strategy is to move the money to a 0% interest account.

This won't be possible for everyone, but will work for people with a decent credit rating.

For people with smaller overdrafts, Martin highlighted First Direct – which offers people a £250 interest-free overdraft buffer and £100 in cash for moving to them.

People with larger overdrafts could try Nationwide's FlexDirect, which offers people moving to it a 0% overdraft for a year – the limit depends on your credit score, but it can be large. After a year the rate shoots up to 39.9% though, so it's a reprieve to let you pay down your debts rather than a permanent solution.

The cheapest overdraft rates outside that are from Starling (15% to 35% depending on credit score) and Monzo (between 19% and 39% depending on credit score).

We've got a guide to checking your score free and how to boost it here, if you want to see how you rate before applying.

Other options include 0% money transfer cards  – that will charge you a small fee (normally less than 5%) to borrow money for a fixed time.

This cash can then be used to clear your overdraft – although you'll need to clear the balance on the cards before the 0% period ends or be hit with interest charges and, once again, if you'll be accepted and how much you'll get depends on your credit score.

Martin added that for people still needing help, especially if the new rates contribute to financial hardship, should speak to their bank – as they should consider offering you alternatives such as waiving interest or cheaper loans if their rates push you into hardship. If they don't, take it to the ombudsman.  

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