Most of us have an overdraft associated with our current account. This allows us to borrow some money if we need it. It can be a very quick way to get some extra money if we run out. The overdraft will have interest charged on it as soon as you use it and it will be paid off automatically when money gets paid into the current account. An unauthorised overdraft is the same except that the bank have not approved it. This means that if you borrow more than they have approved, you will be charged extra money for doing so. The interest rate is usually higher for an unauthorised overdraft and there are likely to be additional charges as well.
To reduce the risk of having an unauthorised overdraft and being charged an extra amount it may seem to make sense to negotiate a larger overdraft. If you over borrow more money than you have agreed then getting a larger authorised overdraft will mean that you can continue to do this at a lower cost. Therefore it could save you a significant amount of money.
However, having a larger overdraft means that you may be tempted to borrow more money on a regular basis. Of course, an overdraft is there so that you can do this. It can be great for emergencies, if you do not quite manage to make ends meet at the end of the month or have an unexpected bill. However, it can also mean that you are less careful with your spending.
This is because if you know that you have this buffer you may not budget so well with your spending. You may feel that as you have the overdraft to fall back on then you will be able to spend more money and not worry so much. It is lovely to have the feeling of freedom and security of knowing that you have that money as a backup. However, it is worth considering how much extra it costs to use the overdraft. It can be an expensive way to spend money. Think about how much more you are paying for things if you include the cost of the overdraft and then you can decide whether you think that it is worth using it or not.
If you keep a close check on how much money you have in your account and how much you have to spend for the month this can help. Having all of your bills going out just after you are paid so that you know that what you have left will cover your variable spending for the rest of the month, such as food and travel expenses, then you should be able to spend carefully and make sure that you do not go overdrawn. It is wise to make sure that you keep checking how much money you have in your account so that you know whether you can afford to spend more money or not. You might be able to cut down what you are buying or delay buying it until you next get paid if you know that you are short of money. It can seem like a nuisance doing this but it can save you a lot of money. You will soon get used to it as well and it will mean that you can spend money without worrying about getting overdrawn so often.
If you do find that you are getting overdrawn a lot then it is worth thinking about whether you need to change the way that you are spending money so that you can stop doing it. It could be that you need to see if you can find a way to earn more money or that you need to find a way to spend less. It is not always easy doing this, but it can be worth it because it means that you will no longer be paying out the interest and fees for being overdrawn. It could even mean that you will start to have enough money so that you can save some. Then if you do get into trouble making ends meet you will be able to fall back on those savings rather than using your overdraft, but it will still be there just in case you really need it.