Overdraft Debt UK: What Happens and How to Clear It

Payday lands in the morning and by the weekend the account is back in the red.

Based on StepChange on overdraft debt, StepChange on right of offset, StepChange on living in your overdraft and the FCA on overdraft charges. This covers England and Wales. For every option see the UK debt help hub.

Why it feels different to other debt

An overdraft does not arrive as a bill. It just shows as a negative number. StepChange describes it as an expensive way to borrow, and says repeat use is a warning sign: being overdrawn for ten months of the year, say, or using an unauthorised overdraft with high charges (StepChange).

What it really costs

The FCA page quotes a representative APR of 39.9% for Lloyds Banking Group, and says that is the best rate offered to at least 51% of customers (FCA). Your own rate depends on your bank, so check your account.

This is our own illustration using that 39.9%, not a quote: £1,000 left in the overdraft costs about £33 a month in interest. Repaying it at a fixed amount:

Try your own numbers in the minimum payment trap calculator.

When the bank takes money back

The rule is called set-off. A bank can take money from your account for arrears on a debt with that same bank, not a different company (StepChange). It must warn you first, and should not take money that would leave you without essentials. Joint accounts have extra protection: StepChange says a joint account should not be used for a debt in your sole name.

If it happens, StepChange says contact the bank straight away and ask for some or all of it back, and complain if it refuses (StepChange). Once you tell the bank about financial difficulty, StepChange says it should typically give four to six weeks to set up a new account and move your wages or benefits.

A way out, step by step

• Write a budget with every pound in and out (StepChange).
• Ask the bank to lower the limit gradually or pause interest, and agree a monthly repayment big enough to clear it.
• Move all direct debits to the same day, just after payday, so you can see what is really spare.
• Open a separate no-overdraft account for daily spending, and treat the old overdraft as a debt to repay.
• Use savings if you have them. Moving it to a cheaper card or loan is the other route, but check eligibility first because applications show on your credit file (StepChange).

If the overdraft is only one of several debts, look at a debt management plan, breathing space or the bankruptcy and DRO checker. For loans, see personal loan debt.

What people usually ask next

Can my bank take money from my account to clear my overdraft?

Sometimes. StepChange says a bank can use right of set-off to take money from your current account to cover arrears on a debt with that same bank, but it must warn you clearly first and should not take money you need for essentials (StepChange).

Can I stop them taking my wages?

In England and Wales you can write to the bank before the money is paid in, saying what it is earmarked for, such as rent or food. StepChange calls this your first right of appropriation and has a sample letter (StepChange).

Can the bank demand the whole overdraft back?

Yes in theory. StepChange says an overdraft is payable on demand, so the bank can ask for the full amount at any time (StepChange). In practice, if you show signs of difficulty the bank must work with you (StepChange).

Are there still overdraft fees?

Not the old kind. The FCA says that from 6 April 2020 banks can only charge a simple annual interest rate with no additional fees and charges, and paid-item fees for unarranged overdrafts ended (FCA).

Should I use savings to clear it?

Usually yes. StepChange says overdraft interest is typically much higher than savings interest, so clearing it from savings is usually cheaper (StepChange). Keep a small cash buffer so you do not go straight back in.

I am overdrawn every month. What now?

StepChange suggests a budget, asking the bank to lower your limit or pause interest, moving the balance to cheaper credit, and opening a separate no-overdraft account for daily spending (StepChange). If nothing works, see a debt management plan.

Worth reading next

• Personal Loan Debt UK: Can’t Pay? What Happens (2026)
• Debt Management Plan UK: How to Pay What You Can Afford
• Will a Default Be Removed If I Pay It? UK (2026)

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