If you are struggling with debts and owe money your bank any balance in your current account will be at risk unless you open a new account.
It is common for people who have debt problems to owe money in the form of a credit card or personal loan to the same bank where their current account is held.
When trying to resolve a debt problem, this situation is a problem because of something known as the right of offset.
The right of offset means that if you are in credit with one account but are unable to pay another held at the same bank, the bank can transfer funds from one to pay the other without having your authority to do so.
This situation can often happen with a current account which goes into credit when wages or other forms of income are paid into it. As soon as a positive balance is available, the right of offset allows the bank to use these funds to reduce your other account arrears.
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Control debt with a new bank account
The right of offset can cause serious difficulties as money required for day to day living expenses suddenly disappears. The result is that you are not in control of your money and trying to manage a debt problem becomes impossible.
The way to get back in control of your money is to open a new bank account with a different bank. Banks cannot use the right of offset rule to transfer your money to accounts held at separate banking institutions.
Opening a new bank account may seem a daunting task. However, it is actually a relatively simple process. You just need to take a few simple things into account.
Generally it will not matter if the new account is with a bank or a building society. You just need to make sure that the organisation you choose is not part of the same banking group as your current bank.
There have been a lot of banking mergers over the recent past so it is always worth checking.
Your credit rating will affect the type of bank account you can open
If you believe that your credit rating is poor, you will need to apply for a simple bank account with no credit facilities – commonly known as a card cash account.
A card cash account will still allow you to withdraw cash using a cash card and set up standing orders and direct debits.
However, you will generally not be offered an overdraft or debit card. Life without this facility which can be used for purchases in shops, petrol stations and on the internet can be restrictive.
There are now some card cash accounts – the Co-Op cash minder for example – which now offers a debit card as standard. However if you are not offered a debit card, you can always apply for a pre paid card. Pre paid cards are open to anyone regardless of credit rating but do come with associated costs of use.
If you have a debt problem and owe your bank money, one of the first actions that you will have to take is open a new bank account. This will ensure that the funds you do have are protected and you remain in control of your payments.
Many people worry about having to open a new bank account. However, it is really a very straight forward process and should not be seen as a hurdle to resolving debt issues.