When your checking account drops past zero, your next debit card purchase can cost you more in fees than your actual purchase. For example, if you have $10 in your account and you use your debit card to buy a $20 t-shirt, you’ll spend $10 more than you have. If your bank shields the transaction and your account goes into the negative, you can be charged an overdraft fee. This can happen more than once depending on how many transactions are made once your account is in the red zone.
But it is indeed possible to avoid overdrafts. If you’re ready to ditch your overdrafts, here are some helpful tips that you can use.
- Opt-Out for overdraft protection. As of Aug. 15, 2010, banks must get a customer’s explicit consent, often called an “opt in” to shield transactions that aren’t “paid” by the consumer. However, without overdraft coverage, transactions get declined on the spot if there isn’t enough money, which likely will result in a non-sufficient funds or returned item fee. Those fees are usually the same as an overdraft fee – but serves as a warning that you’re out of money therefore resulting in not being able to purchase anything anymore. Potentially saving you multiple overdraft fees.
- Keep an account cushion. A cushion, is a balance that you keep in your account in order to protect yourself against from going negative in your bank account and avoiding any overdraft/return fees. For example – let’s say Susie has $500 in her checking account. She writes a check for $100, pays a bill online for $200 and swipes her card for another $200 at a grocery store. By the end of the day she will have $500 worth of pending charges that will be deducted. 2 days later Susie checks her balance and it shows she has $100 available. She grabs dinner with friends for $30 – the next day she’s overdrawn. Susie forgot she had a $100 check that was pending. Hence, why having additional cushion is important. Having as little as a constant $100 can be a good start for a cushion.
- Set up an alert for low balances. Most mainstream banks allow you to set up a low balance alert. You can add any amount for this. For instance, if you do not want your account going lower than $100 your bank will send you a text message letting you know that you have surpassed this amount. Allowing you to add additional funds to your account immediately.
In conclusion, if you do overspend, try to cover the overdraft and fee as soon as possible. Many banks charge more fees if the initial overdraft fee isn’t repaid within a few days causing a recurring charge over and over again until the negative balance is back to a zero balance or above. Borrowing money, getting a short term loan or contacting your bank are all ways you can get back on your feet.