Millions of people who stay within their authorised borrowing limits could see their overdraft charges jump this year as lenders increase their interest payments to 40%.
The new rules are being introduced to comply with new guidelines imposed by the Financial Conduct Authority to make charges simpler and fairer for account holders.
This also includes stopping banks and building societies from charging higher prices for unarranged overdrafts than for arranged overdrafts.
As part of the changes, several banks will increase their annual overdraft rates to 39.9%.
HSBC, First Direct and M&S Bank will all introduce rates of 39.9% from March 14, 2020.
Nationwide Building Society has already imposed a single rate of 39.9% across its adult current account range, while Natwest is also doing the same.
Are you worried about how this will affect you? Get in touch: emma.munbodh@mirror.co.uk
So what can you do about it?
Move your money to a 0% card
Interest-free balance transfer cards have been around for years, and there aren't many people who haven't heard of them. But how do they actually work?
In short, they allow you to shift your outstanding debts onto a new card where you can pay it off without incurring interest for a set period of time - sometimes up to two years.
To move your money, simply apply for one of the cards, and once you have it, transfer the money you need to clear the debt straight to your bank account. You generally need to do this in the first 60 days of having the card.
Once the money's in your account you can use it to lower or clear your overdraft or pay off any other debts you want rid of.
On a £1,000 overdraft, you could save yourself hundreds of pounds in the first year alone.
But bear in mind that doing this comes with two, sizeable, catches.
The first is you'll generally need a pretty good credit rating to qualify for most deals, meaning it's not suitable for a lot of people.
The second is that you still need to pay off the debt. If you don't, you'll be left with a big debt, paying 18.9% interest or more.
The third is that you will have to pay a one-off fee to move the debt.
Best 0% money transfer credit cards right now
Longest: Tesco Bank
- Interest free period: Up to 28 months
- Transfer fee: 3.94%
- Interest after the 0 per cent period: 21.81%
Lowest fees: MBNA
- Interest free period: Up to 24 months
- Transfer fee: Between 2.99% and 3.49%
- Interest after the 0% period: Between 22.93% and 27.93%
Longest guaranteed interest-free period if accepted: Virgin Money
- Interest free period: Up to 23 months
- Transfer fee: 4%
- Interest after the 0% period: 23.9%
Rachel Springall, from Moneyfacts.co.uk explains that borrowers should make sure they pay more than the minimum payment every month.
"Some cards can set the default to a repayment of just 1 per cent plus monthly interest," she said.
"Someone’s debt would hang overhead for much longer on this basis."
Comparison sites such as Uswitch and money.co.uk can help you compare rates.
Speak to someone
If you're deep in your overdraft and are worried about what to do next, speak to your bank or building society and ask for advice.
They're best placed to know what your options are - especially as the new changes come into force. One option, for instance, could be to take out a personal loan, which we've explained further below.
If that doesn't sound right for you, you can receive free debt advice to help you take control of your borrowing from charities such as National Debtline and Step Change .
Take out a low rate personal loan
If your overdraft is £1,000 or more, it may be worth considering taking out a personal loan that charges a lower rate than your overdraft fees.
You can then choose to clear the debt over 12 months in instalments.
Andrew Hagger from MoneyComms explains: "This won't be interest free but for some people the discipline of a regular monthly standing order is a more effective way of clearing debt."
Use your savings or stick to a budget
The rates the banks will charge for you going into your overdraft will most likely outweigh any interest you'll earn on your savings right now - so it may be wise to just use the money that's stashed away to get on top of your debt instead.
"Savings rates are not very competitive right now," explains Rachel.
"In fact the average easy access rate returns just 0.59% per year, whereas the average credit card purchase APR is 25 per cent.
"This is why consumers may need to prioritise paying back debts that are incurring high interest or indeed move the debt to an interest-free offer."
For example, you could pay £200 off every month. You'll need to stick to your plan.
For more help and guidance, see our guide on how to get out of debt.
