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When we have an overdraft we often use it to help us to manage our money well through the month. This might be because we run out before the end of the month and so we use the overdraft to help us to buy what we need before we get paid. Sometimes we may find that this is not enough money and so we might feel that we should negotiate a larger overdraft. But is this a wise idea?

Advantages of a larger overdraft
If you often borrow more money than your overdraft then you will be using what is called an unauthorised overdraft. This is where you take more money than you are allowed. All overdrafts cost money, the bank will charge you interest on it. If you use an unauthorised overdraft then you will be borrowing more than the amount that bank have agreed that you can have. When you do this, they will charge you more for it. The interest rate might be higher and there will be additional fees. You may be charged a monthly fee for the authorised overdraft but for an unauthorised overdraft it will be even more expensive. They may even charge you every day that you are overdrawn. This means that if you have a larger authorised overdraft you will avoid having these greater fees. You will still have to pay but you will not have to pay so much. It means that you will have more money available to you to spend and you will not have to worry so much about paying those expensive fees.

Disadvantages of a larger overdraft
If you have more money available to spend then it might be that you will be tempted to spend more money than you normally would. You might not be so careful about what you are spending the money on and therefore you could find that you will accumulate more debt than you should be. This could end up being extremely expensive as you could end up with lots of interest and fees. You might also find that you will soon use up that overdraft limit and that you will be going into your unauthorised overdraft again anyway. Even if you do not do this, having more money available to you could mean that you will be tempted to spend more money than you normally would.

How to decide
It can be tricky to decide. If you think that you will be sensible and only use the extra overdraft to save you money and for emergency purposes then it can be worth doing. However, if you feel that you will be tempted to just spend it then it could end up costing you even more money. You know how sensible you are with money and whether you will be able to resist spending the extra money or not.

Some people see an authorised overdraft as money that is theirs to spend. Just like they would with a short term loan. They do not think about the charges and fees but just think that the money is a lovely windfall for them to be able to treat themselves in things that they feel they deserve. This is a dangerous way of thinking about it because you forget about the fact that you need to repay the money at some point. You need to make sure that you are also aware of the costs of spending money like this. If you add up how much it will cost you in a year if you remain overdrawn most of the time, you will be able to see the costs better. Think about what you could buy with the money and how you are costing yourself so much by being overdrawn. It might be that you will not even be able to remember what it was that you spend the overdraft on or that you bought things you are no longer interested in.

You need to be really honest with yourself when you are making this decision. It can be a difficult thing to do as you will need to distance yourself emotionally and think about whether it is right for you or not. It could even be better to ask someone else to make the decision for you. Someone that knows you well should be able to work out whether you are likely to be making the right decision or not.

It can be a hard decision. It can seem sensible to have more money available to you. You can use it in emergencies and it will stop you going into an unauthorised overdraft which will be expensive. However, it can be there as a temptation for some people and they might think that they can have fun with the money and spend it and not think about the costs of doing that and how much they will have to pay for it in the future.

Many of us use credit cards for all sorts of different things and it is wise to be very careful when we are using them. There are some people that take advantage of them and manage to use them well so that they actually gain money out of them but there are others which do the opposite and end up being trapped by the cards themselves. It is worth understanding which technique you should be using with a credit card so that you can take full advantage of it and then thinking about whether a card is a sensible choice for you.

How to use a card well
In order to take advantage of a credit card there are several things you need to do and a few things you can additionally choose to do. Firstly, it is crucial that you make sure that you pay off the whole of the outstanding balance on the card each month. The easiest way to do this is to set up a direct debit to pay off this amount when necessary. This will mean that you are totally in control of things. You also need to make sure that you only use the card for normal purchases, This means that you stay in control of your spending and do not buy more than you need just because you have a credit card to use to buy things with. Keep a constant track on the balance of the card as well so that you know you will be able to afford the repayment. Keeping aside the money that you would have spent had you not had a card is sensible idea. You could put this into a savings account to gain interest while you are waiting to repay the card and you will gain even more from it. You could even choose a cashback card which will give you money or rewards for using the card and you will get even more from it.

How to use a card badly
The worst way to use a card is to spend money on things that you would not normally buy or be able to afford. Thinking of it as free money that you can treat yourself with means that you could use it for all sorts of luxury items. Then if you only repay the minimum balance you will more easily be able to afford it. However, you will be paying interest on the remaining balance and this could be really costly especially if it goes on a long time. Also, if you pick a reward card it is likely that the interest rate will be even higher and so it will cost you as much or more than a conventional card. Once the credit limit is reached then it could be tempting to get another card and spend all of the money available on that as well; costing you even more money.

How to decide whether to get a card
It is worth thinking about what type of person you are with regards to spending money. If you always keep a good track of your spending and only buy what you really need then a credit card could be suitable for you. As long as you are not tempted to use it to spend more than you need and you make sure that you keep track of what you are spending so that you know that you will be able to afford to repay it in full each month, then it could be well worth getting. You might even be able to profit from it.

However, if you are the type of person that spends all the money that they get and does not keep a close track on what they are spending then a card could be a very expensive choice for you. It could mean that you will get a lot of expensive debt and be in a situation where you get more and more cards and are in a situation where you cannot even afford to repay the minimum payments let alone the debt itself.

You should know what sort of person you are. You will know how you normally are with money and how careful you are. Think about the risks that you will be taking hen you take out a credit card and whether you feel that it is worth that risk. It could be very expensive and could end up in you getting a lot of stress due to debt and not being able to cope. However, it could end up with you being very much in control, gaining interest free credit for a while and even being able to get rewards and interest if you are careful with the card and use it to your full advantage.

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