Living with an overdrawn bank account can be stressful. Since banks can charge overdraft fees multiple times a day, the fees can add up quickly, building up on negative balance and stress.
The consequences of an overdraft can be serious, so it’s essential to repair your account as soon as possible. The bank can temporarily suspend or even close your account. A closure could be recorded on your file with ChexSystem, an agency that tracks clients who have had problems with their bank accounts. This could make it difficult to open future bank accounts, says Bruce McClary, senior vice president of communications for the National Foundation for Credit Counseling.
Here are some steps you can take to recover from an overdraft account and tips for avoiding overdrafts in the future:
- Make a transfer to cover the costs
If you have money in another account, transfer it to cover the shortfall and avoid additional charges. This should be the first step to take, says Andrea Brashears-Lusk, Certified Financial Planner and President and Founder of Wise Financial Counsel in Fort Washington, Maryland. For example, some banks charge a fee for having a negative balance for consecutive days, and these fees might be charged multiple times.
- Request a refund from your bank
If your bank does not automatically waive fees for certain overdrafts,call your bank and request a refund. The bank could be gracious and give you a refund, especially if it’s your first time or if it’s not a recurring problem, Brashears-Lusk says.
McClary recommends taking another step when calling the bank: discuss how you can avoid being overdrafted again. Most banks and credit unions should be ready to help, says McClary. You can also consider contacting a nonprofit credit counseling agency for free help with your overall financial situation, he says.
“Stop using the account, period,†Brashears-Lusk says. This action will also include one-off and recurring transactions, which are difficult to track and could further overload your account. While calculating expenses against your cash flow, she recommends using aprepaid debit cardto manage expenses. To pay bills that require payments from a bank account, pay by money order, Brashears-Lusk says.
Use these tips to avoid overdrafts
Once you have corrected an overdraft account, there are some essential steps you can take to avoid being overdrafted again.
“You don’t have to physically balance a checkbook, but you should have a way to track expenses,†says Brashears-Lusk. Balancing your checkbook and your budget doesn’t necessarily mean you have to stick to a spreadsheet; several budgeting applications could work.
Automated alerts can help you avoid overloading an account. You can specify a threshold for a low balance and configure an alert to notify you when the account reaches this balance.
- Reconsider overdraft protection
Overdraft Protection Transfers is an optional service that allows you to transfer money from a linked account to your checking account to cover transactions that would overdraw the account. These transfers are generally less expensive than overdraft fees and free at some banks, but if they are not free, they are essential fees to consider.
It’s good to have overdraft protection if cash flow is tight and you’re using the bank account as your primary account for your spending, Brashears-Lusk says.
But if you accumulate fees due to frequent overdraft protection transfers, you might be better off opting out and seeing transactions declined. Beth McCarter, a teacher who lives outside of Dallas and teaches online, says she is strongly opposed to overdraft protection after her experience with her first college bank account.
“In just one day, I had accumulated $ 500 overdraft [protection] fresh, â€McCarter says. “Even though it sucks to be in line and have a cart full of stuff and have your card declined, I’d rather take that.”
Choose the right bank account
A fundamental way to avoid aggravating the damage of an overdrawn bank account is to choose abank that does not charge overdraft feesor offers alternatives to expensive overdraft coverage. If you select one of these bank accounts, the overdraft will not be a problem.
