Stuck in the overdraft cycle? Here’s how to break free


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

Key points

  • Overdraft fees cost Americans an average of $250 a year.
  • Too frequent overdraft can damage your bank profile and make it difficult to open new accounts.
  • Consider overdraft protection, set a budget, and consider switching to a bank that doesn’t charge overdraft fees.

Have you ever felt the drop in the pit of your stomach that comes from an accidental overdraft of your current account? I have. It’s been several years since this happened to me, but I still remember the “Oh no” feeling it gave me. If you are spending more than you have in your checking account, you have just been overdrawn or overdrawn on the account. Maybe you didn’t realize you didn’t have enough money to cover a check you wrote, or you didn’t notice your balance was too low before you swiped your debit card. . You now have fees to pay, in addition to having a negative account balance.

Overdraft fees cost Americans an average of $250 a year, according to a study by the Consumer Finance Protection Bureau. They fall under the umbrella of current account fees typically charged by banks and often cost around $35 each. Overdraft fees can add up quickly, and if you frequently overspend on your account, you could find yourself reported to ChexSystems, an information agency that gathers information on the banking habits of Americans. This could make it more difficult to open new bank accounts in the future. Whichever 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 become a problem, chances are you’ve already heard about it from your bank. If not, 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; usually they involve linking your check to another account (often a savings account), so if you overdraw your account, the amount you miss will come out of the linked account to cover it. A fee may be charged for this service, but it will be lower than standard overdraft fees. If you’ve accumulated overdraft charges and you’re panicking about being negative on your account, see if your bank is willing to remove some or all of them. They might be willing to work with you if this was an unusual event and you are normally a client in good standing.

Check your balance frequently

If you’re not already in the habit of regularly checking your bank account balance, it’s worth getting it. These days, it couldn’t be easier to check your bank account to make sure everything is okay. Many banks have robust web presences and mobile apps that you can access from anywhere with Wi-Fi or cellular coverage. Alternatively, you can call your bank’s customer service number and get an update on your balance. Many banks also offer SMS and email alerts, which will be sent if your balance falls below a set amount. I have one for my accounts that alerts me if I go below $100.

Leave yourself a stamp

In these times of inflation, it’s a good idea not to keep too much extra money in your checking account. That said, leaving a buffer can be very helpful for your peace of mind. I try to aim for around $100-$200, just in case I get a little surprise bill or something is debited from my account when I wasn’t expecting it (e.g. my insurance bill auto and tenants is set to autopay and can be difficult to predict when the insurance company will actually subtract it).

Keep track of your expenses

Along with regularly checking your balance, sticking to a budget can be a great way to know where your money is really going. If you’ve never budgeted before, don’t be intimidated; there are great budgeting apps there to help you get started. I’m a bit old school, so in addition to my simple spreadsheet budget, I also rely on a spiral notebook that acts as a sort of checkbook ledger (I don’t write checks often). When I get paid, I write down the balance in my bank account, then I do the math to see how much I have left after paying the bills and transferring 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 changing banks

For some banks, overdraft fees are actually become a thing of the past. There are a few banks that no longer charge them at all, and others that have reduced them from $35 to $10. If your bank hasn’t jumped on this bandwagon yet, consider switching to one that has.

Increase your income

If you find yourself running out of money between paychecks, consider increasing your income. This could take the form of a side hustle, a pay raise, or even a new full-time job. Living paycheck to paycheck is incredibly stressful, and in addition to hurting your finances, it can also hurt your mental health if you’re always worrying about having enough money. Believe 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 fare.

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