The cost of running an overdraft has never been higher.
Research published earlier this year by analyst Moneyfacts.co.uk found that the average charge for going overdrawn per month now stands at £12 compared with just £2 back in 2008.
Money transfer credit cards
This means you can end up severely out of pocket if you’re constantly overdrawn.
But there is a type of credit card that could help.
Money transfer cards let you move whatever you borrow to your current account, giving your bank balance a boost and lifting you out of your overdraft.
You then get a 0% period – in some cases lasting more than three years – in which to pay off the sum interest-free.
How these cards are different
Card providers charge a fee for this, typically around 4% of the amount you’re transferring.
But if paying this fee still means saving money on the interest you’re paying servicing your overdraft, then it is definitely worth considering.
Nerys Lewis, head of credit cards at Confused.com, explains how money transfer deals differ from other types of plastic.
She says: "If your current account needs a cash injection, then a money transfer can be a great way to help you out.
Avoid high rates
"Most credit cards would class this type of transaction as a ‘cash advance’ – which can attract interest rates of 30% or more from day one.
"Plus cash advance fees can be around 3%, so we’d never recommend you do this.
"But with a money transfer credit card you can clear your overdraft without being hit by sky-high charges, giving you breathing space to pay off the balance interest-free."
While a transfer fee of 4% is common on money-transfer cards, a new range of deals from Virgin Money is shaking up the market.
The lender currently charges as little as 1.69% for transfers – this applies to the 32-month interest-free card, and means that borrowing £5,000 and moving it into your bank account would cost £84.50. At 4%, this fee would rise to £200.
Virgin has cards with longer interest-free periods: its 34-month card charges 2.29%, while for 36 months at 0% the fee is 2.39%.
However, for 37 months – the longest interest-free period currently available for money transfers – the fee is 4%.
Money-transfer cards may have other features to help sway your decision: some offer zero-interest periods on new purchases.
‘You’ll need to be disciplined’
And there are also some hybrid balance-transfer/money-transfer cards that allow you to move existing credit card debts at low rates of interest – but again, you will be charged a fee based on how much money you move.
Before you make your application, Lewis adds a word of caution.
"If you haven’t paid off your debt within the 0% period, you’ll start paying interest unless you can transfer it to another interest-free card.
"You'll also need to be disciplined and make sure you pay off the balance that’s been transferred and not simply spend more and dip back into your overdraft."