Overdraft: how to escape the quiet debt trap
A bank overdraft is an available but expensive loan that can gradually become permanent debt and harm your ability to save and progress financially. This page explains credit limits and overdraft interest and shows how to stop the debt from growing, balance cash flow and reduce the overdraft responsibly.
- Reading time
- 6 minutes
- Last updated
An overdraft is one of the easiest financial habits to get used to, which also makes it one of the most dangerous to ignore. For many Israelis, living in overdraft feels "normal": "Everyone lives this way" or "The salary comes in and everything works out." But the hard truth is that an overdraft is not free money. It is a loan from the bank, and loans carry interestThe "price of money" – the amount paid for the use of someone else’s money, as income to the depositor or as a cost to the borrower.—in this case, very high interest.
Beyond the pure financial cost, a chronic overdraft creates constant stress, limits your freedom of choice and weakens your ability to save or invest in the future. This chapter breaks the illusion surrounding credit limits, explains how the true interest on an overdraft is calculated and presents a simple process for managing cash flow and regaining control.
What is a credit limit?
A credit limit is simply the maximum debt the bank allows you to reach in a negative balance. If your limit is NIS 20,000, the bank has preapproved you to borrow up to NIS 20,000 from it at any given moment.
