Do you find that despite your best efforts, you keep spending more money than is in your checking account?
Overdraft protection is a double-edged sword – it gives you a spending safety net, but regular use and those nasty overdraft fees also worsen your debt and credit. Read this article for strategies to prevent incurring overdraft fees and stay in good standing with your bank.
1. Read Up On Your Bank Account’s Overdraft Protection Policies
The first thing you should do when incurring multiple overdraft fees is to get informed. Every financial institution has their own policies relating to overdrawing, and different checking accounts have varying terms as well.
Some accounts offer to waive overdraft fees up to a certain limit, but the mistake is to think of overdraft funds as your own money. Remember, spending on overdraft incurs interest like any other loan. Just because you are able to waive overdraft fees, you should still avoid overdrawing whenever possible.
Make sure you always read the terms and conditions of your bank account in full.
2. Monitor Your Bank Accounts Daily
If you’re in a habit of overdrawing, it’s time to create a new habit: monitoring your checking account balance daily. Mobile banking apps make it easy to log in wherever you are to check your account balances. You can also check your balance through e-banking on a computer or at an ATM.
Checking your account daily will allow you to catch a low balance and avoid spending money you shouldn’t. Monitoring your balance is also a great habit to stay budget conscious and keep your budgeting progress at the top of your mind. If you are able, aim to always have a minimum amount in your checking account.
When you are checking your funds, be sure to look for the number that says “available balance.” This is a more accurate statement as it takes into account transactions that have not been fully processed.
3. Set Up E-mail or Text Alerts For Low Balance
Many financial institutions allow you to set up e-mail or text alerts to warn you as soon as your checking balance is low. This is a simple way to inform you when you’re at risk of overdrawing so you can transfer money or avoid spending from your debit account.
4. Transfer Quickly To Prevent An Overdraft Fee
If you realize you’re overdrawn and have money to transfer before the day is out, you may be able to prevent the overdraft fee. Some banks have a cutoff time to restore your balance before the fee would be triggered, so if that’s the case, transfer your money ASAP.
If you do get hit with a fee, the last thing you want is to continue spending after being overdrawn and racking up more fees. As soon as you become aware you are overdrawn, transfer money to your checking account.
In some cases, if you’ve been a loyal customer at the bank with a good reputation, you can request to have overdraft fees waived. Don’t count on the bank being generous, and this likely would only work once.
5. Link Your Checking Account to your Savings Account
Some banks offer the handy feature of linking your checking and savings accounts, so any overdraft will be taken directly from savings. While this might incur an account transfer fee each time, overdraft fees are higher and far worse for your finances.
6. If You Can, Opt Out of Overdraft Protection
Overdraft protection exists to help you in a pinch, but if you find you are relying on overdraft too much, it may be time to opt out. Having overdraft protection may seem beneficial as it reduces the overdraft fee for a transaction, but it also won’t prevent you from further spending.
By opting out of overdraft protection, your debit card will be declined when you attempt to spend more than is in your account.
Keep in mind that opting out of overdraft protection affects debit purchases only. Banks will still apply their own terms when you overdraw on an automatic recurring transaction, such as a rent payment.
7. Create a Financial Plan
Sometimes we all need a little help. If you continue to incur overdraft fees and need help managing your finances, you may want to consider getting help from a financial counselor.
At RepairCreditQuick, we can connect you with resources to help you achieve your financial goals, improve your credit score, and manage your debt. Sign up now for a free credit report summary and free consultation from one of our trusted partners.