The majority of people who pay the lion share of bank overdraft fees are the people who can least afford those fees! Have you ever needed to buy gas and knew you were low on your checking account balance, but knew the debit card would still work? I hope you filled the tank because a $35 fee on top of a $20 gas purchase makes no sense. Some people tell stories about banks choosing to approve and post your larger purchases first, to help you, of course, and then they post the small stuff last. If your smaller purchases for the day post when your account is in the red, each little purchase might trigger an overdraft fee. That can make for some expensive coffee, even if it was from a gas station.
Think of overdraft fees as a bad habit you can kick if you follow five steps to success!
- Ditch the overdraft protection so your card declines and you avoid the fees.
Consumer protection laws designed to protect you, require you to opt-in to the bank’s overdraft protection programs. If you do not opt-in to overdraft protection, your debit card will be declined when you go to make a purchase and there is not enough money in the account to cover it. The upshot is not being able to overdraw your checking account by over swiping your debit card. These days, payment system technologies hold the money on your debit card, and even though it might not post for a day or two, you should not be able to overdraw your account with debit transactions if you do not opt-in to overdraft. Make sure you have some emergency cash or a credit card on hand in case you need it.
- Connect a savings account to your debit checking to cover any “oops” charges.
Most banks and credit unions offer the ability to connect your checking account to an emergency or back-up account that will transfer some money into your checking account when it becomes overdrawn. The idea is to use your own money to cover it instead of using the bank’s money to cover your overdrawn purchases and sock you with fees. This is a good way to cover yourself in the event you completely forgot the tollway was going to debit that extra $40 from your account when your tollway balance fell short.
- Pay with a credit card or actually use cash, and when it’s gone, you’re done spending.
Credit cards are great when you use them like debit cards. How much do you have in the account? That’s how much you can afford to swipe on the credit card. Now, if you blow a tire and need to buy a new pair of tires, the several hundred dollars might have to ride on the credit card for a paycheck or two, but when you get caught back up, any interest you might pay for carrying a balance is tiny in comparison to overdraft fees. Stashing emergency cash in the car and at home is a good idea. Some people call it “wall money” and more often keep it in a coffee can out of reach in the kitchen or somewhere only you know where it is. If you have to, run to the bank and make a deposit before the end of the business day so there is enough money in the checking account before the bank posts the transactions that could put you under and tack on all the overdraft fees.
- Make your mother proud, sit down, and make a budget you can manage.
Go ahead and skip to number five if you want, but consider making a budget, if only for a minute or two. Figure your fixed monthly expenses and determine how much you can really afford for discretionary expenses and fun stuff. Imagine when you get paid, you take a pile of cash and stack it up in the different budget piles – when the money’s gone, you’re done spending it. You might get mad the first few times you learn how it feels to want to go out to dinner and you regret spending your extra budgeted money on baseball tickets. It really takes discipline. If you try and fail, try and try again. You might just end up making some positive spending and saving habits despite your spending habits.
- Save money for rainy days or those days you otherwise would have overdrawn your account.
A savings account can be addictive. When people start saving money they are proud of the stash they set aside and want nothing to ever happen to it. As you keep adding a little bit here and there, you feel more pride in your savings. If in the meantime you overdraw your account or run out of money and need that new set of tires, pull some from savings – it’s okay, that’s what it’s there for. Financial success is a function of your wins and losses with money. Think of it like a game you can play. Test yourself and see how strong you may need to be to win the battle. When you win more battles than you lose, you win the war against overdraft fees!
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