Your money: What to do if you keep slipping into the red

OVERDRAFT charges are a regular headache for bank customers, whether they’ve busted their limit without realising it or been hit with a big monthly bill.

It can be all too easy to dip in and out of an overdraft without fully considering the overall cost – and whether borrowing could be cheaper elsewhere.

But now, the UK’s biggest current account provider will shake up the way overdrafts are charged.

Lloyds Banking Group, which has more than 20 million current account customers, is introducing a “pay-as-you-go” system from November.

Customers will be charged a single rate of 1p per day for every £7 of planned overdraft usage.

The company is also removing some fees and charges – including for unplanned overdrafts. Lloyds says the moves will mean, overall, it makes less money from overdrafts.

The moves comes as the Financial Conduct Authority puts high-cost credit, including overdrafts, under the spotlight.

Andrew Hagger, founder of of MoneyComms.co.uk, says: “I’m sure Lloyds won’t be the last bank to review its overdraft tariff in the next few months.”

Meantime, if you’re seriously struggling with an overdraft, consider getting free help from a debt charity, as well as talking to your lender to prevent the problem getting worse.

Rachel Springall, a finance expert at Moneyfacts.co.uk, suggests those who dip in and out of their overdrafts should make the most of banks’ free text alerts when they’re about to go into the red and, if possible, top up their current account from any savings.

Looking for banks offering overdraft buffers can be another way to avoid being hit by charges.

Rachel highlights a £250 overdraft buffer from First Direct.

Zero interest credit cards can also give some breathing space when tackling debt, but she cautions: “It’s vital that card customers make a plan to tackle the balance during the interest-free period and not have it hanging over their heads.”