Martin Lewis has taken to social media to name the "most dangerous" form of borrowing in the UK. While some might assume it's a credit card, the MoneySavingExpert.com founder quickly dismissed that assertion, instead naming overdrafts as the number one contender.
"The most dangerous form of mainstream borrowing in the UK isn't a credit card, it's an overdraft," he says. The reason is simple but eye-opening. "Most overdrafts cost 40% interest, compare that to a typical high street credit card of just 24.9%."
"While many people think credit card's bad, debit card's good, actually, if you're overdrawn, your debit card is a debt card too, and it is more expensive than the credit card."
The mistake Martin says people make most often follows naturally from that misunderstanding. "People who have both will often think, I need to try and pay off my credit card with my overdraft, so they're paying off a 24.9% debt, but they're building up debt at 40%."
"You'd actually want to pay just the minimums on the credit card and get rid of the overdraft," Martin explains. "Think of your overdraft like a debt, plan to pay it off."
He suggests setting a clear monthly target — if you are £700 overdrawn this month, the goal is to be £600 overdrawn next month, and so on. Moving direct debits to just before payday where possible also helps, reducing how long you spend overdrawn each month and cutting the amount of interest that accumulates.
And for those looking to go further, Martin points out there are ways to bring the cost of an overdraft down to 0% entirely. The gap between a 24.9% credit card rate and a 40% overdraft rate might not sound enormous in isolation — but compounded over months it makes a significant difference to how quickly debt grows and how hard it becomes to clear.
A spokesperson for financial assistance experts Single Parents Grants said: "The thing about an overdraft is that it rarely feels urgent because the money keeps flowing in and out of the account. But at 40% interest it is one of the most expensive ways to borrow, and it compounds quietly in the background. Checking whether your bank offers an interest-free buffer, or whether switching could get you a better rate, is a simple first step that a lot of people overlook."
