A Guide to Managing your Overdraft

When expenses are tight among cashing checks, payday loans and credit card payments, it may be difficult to figure out what checks cleared and which ones didn’t. The U.S. Federal Deposit Insurance Corporation (FDIC) suggests simply knowing what consumers have to spend is the first step to avoiding overdraft trouble. Overdrafts in a checking account are never pleasant, but there are steps that can be taken to make overdrafts more manageable.  

Be prepared

It’s a good idea to always know what is in a checking account and a savings account at all times. Budget ahead of time before going on shopping trips. Always have an emergency fund. Overdraft fees can rack up quickly and become more than just a nuisance. Fees for banks can take away food from the table and gas in the tank.

Know the overdraft coverage

Even with debit cards, it is possible to overdraft a checking account. Banks commonly have overdraft protection on checking accounts which can be applied to debit card transactions. Know what the limits are when it comes to overdraft protection. Good banks have unlimited protection as long as money is available in an attached savings account. Bad banks may protect consumers for one check in 90 days and that’s it. A happy medium may be consumers get protection for a certain number of checks per month that are less than $100. Knowing what the rules are for overdraft protection from the get-go is one key to managing possible fees.  

Communication is important

As with any entity that controls a financial aspect of life, communicating with a bank is one step to alleviating concerns. Banks are just like phone companies-they can negotiate in times of crisis. Making arrangements or promising to pay fees by a certain time lets the bank know the consumer is at least willing to pay them. Bank managers often have the authority to override fees under certain circumstances. Plus, it never hurts to ask what can be done to help.

Prevention is the best cure

Don’t go into debt just to pay a checking fee balance.  Eventually, returned check fee charges add up. One way to keep returned check charges from accruing is to simply not write checks and use debit cards. Not only will a debit card help budget expenses, but it may keep consumers from accruing hundreds of dollars in overdraft fees in the long run. Those fees can interfere with personal finances if they accrue quickly.

Don’t use credit cards to pay overdraft fees

One short-term trap to get into is simply using a credit card to pay overdraft fees. That’s not a good idea since the credit card company will simply use the bank account to collect money eventually. Using credit to pay for fees is an unending circle of financial despair that gets harder to solve the more the scenario happens.

Seek help

Non-profit agencies can help with consumer credit and financial difficulties. Charitable agencies can often work with for-profit banks and credit agencies to lower fees. Plus, using a credit counseling agency lets the bank know that the consumer is at least willing to work on reducing overdraft fees rather than just closing the bank account.