How to Prevent Overdraft Fees

In tight economical times, every penny counts, and repeatedly paying overdraft fees to the bank can add up fast. Fortunately, there are simple steps to managing overdrafts so they won’t wind up destroying the household budget.

Avoid overdrafts

As simple as it sounds, avoiding the overdrafts in the first place is the best way to get rid of the bank fees. It may mean simpler meals, postponing a night out, or deactivating non-essential services such as television or smartphone data plans.  In some instances, it is possible to adjust billing dates so that the billing cycle coincides with payday, reducing the likelihood of running out of money prior to paying the bills.

Simplify your shopping

If the overdraft fees are still piling up, examine the bank statement.  If there are multiple overdrafts stemming from relatively small purchases, try to combine small purchases into larger shopping trips. For example, a $1.00 soda, $7.00 magazine, and a $3.00 trip to the grocery store is only $11.00, however with an overdraft fee of $25.00 for each purchase, the total bill climbs to $86.00! By combining each purchase, the bill drops to $36.00. While it still isn’t great, saving $50.00 in overdraft fees can certainly help budget frustrations.

Use online banking to monitor your spending

With Internet access and mobile phone banking becoming more common, it is important to remember to use these tools to manage and monitor spending.  Before going on a shopping trip, double check the account balance. It is possible some bills or forgotten purchases have been posted to the account, leaving less money for shopping. A few clicks of a mouse can mean the difference between a slightly modified shopping trip and an expensive collection of overdraft fees. 

Use cash for discretionary spending

Another method to eliminate overdraft fees is to only use cash for discretionary spending. Once the bills have been paid and the groceries bought, place a set amount of cash aside for discretionary spending. Once the cash is gone, there can be no more discretionary spending. This will prevent overdraft fees from piling up due to overindulgent spending (provided you can keep from using the debit or credit card once the cash is gone).  While it may be frustrating to run out of cash and be unable to do something fun, it is better in the long term to be able to manage the money on hand and prevent expensive overdraft fees.

Ultimately, the importance of setting and maintaining a budget cannot be overstated. By carefully adhering to a pre-established budget and monitoring spending and account balances, the risk of encountering overdraft fees can be greatly reduced.