Stuck In An Overdraft Cycle? Here’s How to Free Yourself | Techy Kings

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A woman writes on a piece of paper while looking at bills and a laptop.

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It is one of the worst feelings in the (financial) world.


Main topic

  • Overdraft fees cost the average American $250 a year.
  • Overdrafting your account too often can affect your banking profile and make it difficult to open a new account.
  • Look at overdraft protection, budget and consider switching to a bank that doesn’t charge overdraft fees.

Have you ever felt down in the pit of your stomach from accidentally overdrafting your account? I have. It’s been a few years since it last happened to me, but I still remember the “Oh no” feeling it gave me. If you spend more than what you have in your checking account, you’ve just overdrafted or overdrawn the account. Maybe you didn’t realize you didn’t have enough money to cover the check you wrote, or you didn’t notice your balance was too low before you swiped your debit card. Now you have payments to pay, in addition to having a negative account balance.

Overdraft fees cost Americans an average of $250 a year, according to research by the Consumer Financial Protection Bureau. They fall under the umbrella of checking account fees typically charged by banks, and usually cost about $35 each. Overdraft fees can add up quickly, and if you regularly overdraw your account, you could find yourself reported to ChexSystems, a reporting agency that aggregates information about Americans’ banking habits. This can make it difficult to open a new bank account in the future. Any way you slice it, overdrafts are bad news. If you keep finding yourself with an overdrawn checking account, here are some tips to break the cycle.

Talk to your bank

If overdrafts are a problem, chances are you’ve already heard from your bank. If you haven’t already, I recommend calling that customer service line, or checking the bank’s website to see what options you have. Many banks offer overdraft protection programs; typically it involves linking your checking to another account (often a savings account), so if you overdraw your account, the amount you’re short comes out of the linked account to make up for it. There may be a fee charged for this service, but it will be less than the standard overdraft fee. If you’ve racked up some overdraft fees and are panicking about going negative on your account, see if your bank is willing to waive some or all of them. They may be willing to work with you if this is an unusual occurrence and you are usually a customer in good standing.

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Check your balance regularly

If you’re not already in the habit of checking your bank account balance regularly, it’s worth getting. These days, it’s not easy to check your bank account to make sure everything is fine. Many banks have a robust web presence and mobile app that you can access from anywhere you have wifi or cellular coverage. Failing that, you can call your bank’s customer service number and get an update on your balance. Many banks also offer text and email alerts, which will be sent if your balance drops below a set amount. I have one set for my account that tells me if I drop below $100.

Leave yourself a buffer

In this age of inflation, it’s a good idea not to keep too much extra money in your checking account. However, it can help your peace of mind to leave the buffer to yourself. I try to aim for around $100-$200, just in case I have a small surprise bill or something is debited from my account when I least expect it (for example, my car and renter’s insurance bills are set to autopay and it can be hard to predict when the insurance company will actually issue them ).

Track your expenses

Along with checking your balance regularly, living on a budget can be a great way to keep track of where your money is actually going. If you’ve never done a budget before, don’t panic; there are great budgeting apps out there to help you get started. I’m kind of old school, so along with my simple spreadsheet budget, I also rely on a spiral notebook that acts as a sort of checkbook register (I don’t write checks very often). When I get paid, I note my bank account balance, then do the math to see how much I have left after I pay the bills and transfer the money to my high-yield savings account. This way, I always have an idea of ​​how much money I should have in my check.

Consider switching banks

For some banks, overdraft fees are actually a thing of the past. There are some banks that no longer charge it at all, and others have reduced it from $35 to $10. If your bank still hasn’t caught up, consider switching banks to one that has.

Increase your income

If you find yourself running out of money between paychecks, look to increase your income. This could be in the form of a side job, a raise at work, or a new full-time job altogether. Living paycheck to paycheck is stressful, and in addition to taking a toll on your finances, it can also harm your mental health if you’re constantly worrying about having enough money. Trust me, I’ve been there.

It is possible to break the overdraft cycle and keep your checking account in the black. Try some of these tips and see how much better you’ll get.

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