Overdraft Debt UK — What Happens and How to Clear It
Overdraft eating your wages every month?
See your full debt picture and get your exact payoff date. Free. No signup needed.
Get My Free Debt Plan →I lived in my overdraft for three years. Every payday the money landed, the bank took most of it straight back, and by the end of the week I was overdrawn again. It felt like running on a treadmill that was slowly speeding up. I never got ahead. I just got more in debt.
Overdraft debt is one of the most overlooked debt problems in the UK. It does not feel like real debt. It feels like your account just being a bit short. But the interest charges, the credit file impact, and the way it traps you month after month make it just as damaging as any credit card.
Arranged vs Unarranged Overdraft — The Key Difference
An arranged overdraft is one you agreed with your bank in advance. You have a set limit — say £500 — and you pay interest only on what you use. The interest rate is clearly advertised.
An unarranged overdraft is when you spend beyond your agreed limit or go overdrawn without any arrangement. If your account is overdrawn beyond your arranged limit, the bank may refuse payments such as direct debits or standing orders. [Freeusukcalculator](https://freeusukcalculator.com/tools/debt-payoff-calculator.php?claude-citation-b5a61aa0-1c35-446d-8cc7-efecea692fff=7ace916e-dc84-4d74-8994-0dac1f29b6fb) That means missed rent, missed loan payments, missed bills — all because of an overdraft you did not know you were in.
Under FCA rules introduced in 2020, banks are no longer allowed to charge higher fees for unauthorised overdrafts than for arranged ones. Daily or monthly fees for unarranged overdrafts have largely been abolished, and interest rates must be clearly advertised. [East Hampshire District Council](https://www.easthants.gov.uk/council-tax/what-happens-if-i-dont-pay?claude-citation-b5a61aa0-1c35-446d-8cc7-efecea692fff=317d3997-9cc9-466a-ab66-7b577938af8a) That was a big change — before 2020, unauthorised overdraft charges could spiral fast. But the reform did not make overdrafts cheap. It just made the costs clearer.
What Does an Overdraft Actually Cost in 2026?
Most UK high street banks now charge a single annual interest rate (EAR) on overdrafts. Here is what the major banks charge as of 2026:
UK Overdraft Interest Rates — 2026
Barclays: 35.0% EAR
HSBC: 39.9% EAR
Lloyds: 39.9% EAR
NatWest: 39.49% EAR
Santander: 39.94% EAR
Monzo / Starling: tiered rates based on credit profile — typically 19%–39% EAR
At 39.9% EAR, a £500 overdraft you sit in for a full year costs you around £200 in interest alone. Most people in a persistent overdraft are paying well over £100 a year for the privilege of being skint.
How an Overdraft Affects Your Credit Score
An overdraft will appear on your credit report as a debt. If you don’t use your overdraft it will show a zero balance. Anyone who is in their overdraft will see the amount they owe on their credit report. [Calculator.net](https://www.calculator.net/debt-payoff-calculator.html?claude-citation-b5a61aa0-1c35-446d-8cc7-efecea692fff=9c025c45-2bc2-494c-b1bf-bfa58d15a155)
Exceeding your authorised limit is typically recorded as a missed or late payment on your credit file. Repeated use at or near the limit signals to lenders that you are consistently reliant on overdraft borrowing, which can affect affordability assessments. [Updraft](https://www.updraft.com/clearing-card-debt/debt-payoff-calculator-uk/?claude-citation-b5a61aa0-1c35-446d-8cc7-efecea692fff=dd7f0c35-d9c1-4eeb-9cc7-804a73a23a3a)
For mortgage applications especially, a persistent overdraft sends a warning signal to lenders. It suggests you are regularly spending more than you earn. That is the last thing you want them to see. Use our free DTI Calculator to check how your overdraft is affecting your lending position.
What Happens If You Cannot Pay Back Your Overdraft
Stage 1 — Interest keeps mounting
The longer you stay overdrawn, the more expensive the debt becomes. [Freeusukcalculator](https://freeusukcalculator.com/tools/debt-payoff-calculator.php?claude-citation-b5a61aa0-1c35-446d-8cc7-efecea692fff=34e2019e-c1ff-4d45-99c5-d72186b3eb17) If you are only using your overdraft occasionally and clearing it when you get paid, the cost is manageable. If you are permanently overdrawn and never clearing it, you are paying interest on interest every single month.
Stage 2 — The bank restricts your account
If you are consistently exceeding your overdraft limit or missing payments, your bank can reduce your overdraft limit, suspend it entirely, or close your account and demand full repayment. They must give you notice — typically 30 days for a reduction or removal of an arranged overdraft.
Stage 3 — Debt referred to collections
If you cannot repay the overdraft after the bank closes your account, the debt is often passed to an internal collections team or sold to a debt collection agency. At this point it is treated the same as any other unsecured debt. You will receive letters and calls requesting repayment.
Stage 4 — Default and CCJ possible
If the debt remains unpaid, the bank or debt collector can issue a default notice on your credit file — which stays for six years — and ultimately apply to the county court for a County Court Judgement (CCJ). An overdraft CCJ has the same consequences as any other CCJ.
Is Overdraft Debt a Priority Debt?
No. Overdraft debt is an unsecured non-priority debt. That means it sits below council tax, rent arrears, mortgage arrears, and energy bills in terms of urgency. You should always tackle priority debts first. But do not ignore your overdraft — the interest accumulates fast and the credit file damage is real.
See our full UK debt help guide to understand exactly which debts to tackle in which order.
How to Clear an Overdraft — 5 Strategies That Actually Work
Strategy 1 — Salary redirect method
Open a second basic bank account with no overdraft. Have your salary paid into the new account. Pay only your essential bills and living costs from it. Transfer a fixed amount each month to the old account to chip away at the overdraft. This breaks the cycle of your wages landing and immediately disappearing into the overdraft hole.
Strategy 2 — Ask for a lower limit
Call your bank and ask them to reduce your overdraft limit by £100 every month. Most banks will do this. It forces you to reduce usage gradually without the shock of a sudden repayment demand. Each reduction is a small win.
Strategy 3 — Switch to a 0% money transfer card
Some credit cards offer 0% money transfer deals — they transfer cash directly into your bank account to clear the overdraft. You then pay off the card at 0% over 12–24 months instead of paying 39.9% EAR on your overdraft. There is usually a transfer fee of 2–4%. This only works if you qualify and do not accumulate new overdraft debt.
Strategy 4 — Personal loan to clear the overdraft
A personal loan at 8–15% APR is significantly cheaper than a 39.9% overdraft. Use the loan to clear the overdraft in full, then make fixed monthly repayments on the loan. This converts a revolving debt with no end date into a structured debt with a clear finish line. Use our Debt Consolidation Calculator to check if the numbers work for you.
Strategy 5 — Build a £500 emergency buffer
The most effective long-term solution is a small emergency fund — even £200–£300 — held in an instant-access savings account. This acts as a buffer for unexpected expenses that would otherwise push you into overdraft. Building this gradually — even £10 a week — reduces overdraft dependency over time. [Updraft](https://www.updraft.com/clearing-card-debt/debt-payoff-calculator-uk/?claude-citation-b5a61aa0-1c35-446d-8cc7-efecea692fff=f5023a5e-6043-44a5-9f2b-ea54836725c0) Use our Emergency Fund Calculator to find your exact target.
Overdraft plus other debts?
Enter everything you owe and get a prioritised plan — which debt to clear first, how much to pay, and your exact debt-free date. Free. Takes 60 seconds.
Get My Free Debt Plan →Can Overdraft Debt Be Written Off?
Overdraft debt is an unsecured debt and can be included in a Debt Relief Order (DRO), IVA, or bankruptcy if you qualify. If the debt becomes statute barred — six years from your last payment or written acknowledgment — the creditor cannot take you to court to enforce it. Check our free Statute Barred Checker if your overdraft debt is old. Use our DRO and Bankruptcy Checker if you are considering insolvency options.
Frequently Asked Questions — Overdraft Debt UK
Can my bank close my account because of an overdraft?
Yes. If you consistently exceed your limit or cannot repay the balance, your bank can close your account. They must give you reasonable notice — typically 30 days. They will demand repayment of the outstanding balance. If you cannot pay, the debt moves to collections.
Does an overdraft affect my credit score?
If you only dip into your overdraft occasionally and it gets cleared at the end of the month when you get paid, your overdraft use may not appear on your credit report. That is because most banks only send information to credit reference agencies once a month. [Calculator.net](https://www.calculator.net/debt-payoff-calculator.html?claude-citation-b5a61aa0-1c35-446d-8cc7-efecea692fff=fc1bb001-38f2-4eae-b7ba-38394e9a84b7) But a persistent overdraft balance will show as a debt and impact your score.
Can I be taken to court over an overdraft?
Yes. If the bank or debt collector cannot recover the overdraft debt, they can apply to the county court for a CCJ. This is more likely for larger overdraft balances — typically over £1,000 — where the cost of court proceedings is justified.
What is the cheapest way to clear an overdraft?
The salary redirect method costs nothing and breaks the cycle without taking on new debt. If you need to clear it faster, a 0% money transfer card or a personal loan at under 15% APR will save significant interest compared to staying in a 39.9% EAR overdraft.
Should I prioritise my overdraft over credit card debt?
Compare the interest rates. Most overdrafts charge 35–40% EAR. Most credit cards charge 20–25% APR. The overdraft is almost always more expensive — so it should usually be cleared first. Use our Savings vs Debt Calculator to run your exact numbers.
Can I get free help with overdraft debt?
Yes. StepChange (0800 138 1111) provides free regulated debt advice and can help you create a repayment plan that covers your overdraft alongside any other debts. Citizens Advice and National Debtline (0808 808 4000) also offer free help.
Disclaimer: DebtShift is an educational platform. This content is for informational purposes only and does not constitute financial or legal advice. For free regulated debt advice contact StepChange (0800 138 1111), National Debtline (0808 808 4000), or Citizens Advice. DebtShift is not FCA regulated.