If you overdraw your account, take these steps to get it back in the black.
Nothing can put a damper on a day quite like logging into your online banking account and seeing a negative number. Unfortunately, account overdrafts are not rare, and they are not inexpensive.
Banks collect more than $31 billion annually in overdraft fees, according to research firm Moebs Services. The organization found the number of overdrafts incurred in the last year averaged 6.7 per account.
Cal Brown, a certified financial planner with Savant Capital Management in McLean, Virginia, says consumers should take heart in knowing they are not alone. “It happens to a lot of people,” he says, “but you have to act promptly and quickly [when it does].”
Not only do you need to address the immediate problem of your overdrawn account, but it’s equally important to take steps to prevent it from happening again.
3 Steps to Address the Immediate Problem
1. Get money in your account ASAP.
The important thing to do after overdrawing your account is to get your balance positive again. However, there is a right way and a wrong way to do that.
“Your overall strategy is to solve the problem without creating a new one,” says Kelsa Dickey, a financial coach and owner of Fiscal Fitness Phoenix. That means skipping payday loans or other ways of getting cash that will put you in debt. Instead, try one of these methods.
- Transfer money from another account. “I see it all the time where people overdraw one account, but they have money in another account,” Dickey says. If you have cash stashed in multiple accounts, the easiest way to solve your problem is to transfer funds from an account in the black.
- Sell something. If you don’t have money in the bank, you may have it in your house in the form of used, but valuable, stuff. To get the cash you need, try listing some items on Craigslist or a Facebook yard sale site. If you don’t want to wait, look for a local pawnshop or a consignment store that will buy items outright.
- Pick up extra work. Another way to get money for your bank account is to work some odd jobs. Ask friends or neighbors if they’d like a baby sitter for the evening or maybe need lawn work or house cleaning done. It may be embarrassing to ask, but Dickey says “you have to eat your pride a little when something like this happens.”
- Cash in your change. Do you have a change jar that’s collecting dust in the corner or has been holding your vacation fund? Now might be the time to cash that in.
- Call your house of worship. Depending on the size of your money problem, you may want to pick up the phone and call your church, synagogue or wherever you practice religion. Dickey says she often sees people who generously donate to their church but hesitate to ask for help. Keep in mind that many religious institutions have a fund set aside specifically to assist members in need.
2. Call your bank to request the fees be waived.
You should expect to see an overdraft or nonsufficient funds fee on your statement soon after your account goes in the red or a check bounces. Moebs Services reports the median fee is $30, although your financial institution may charge more or less. For instance, SunTrust doesn’t charge a fee for overdraft transactions less than $5.
If this is your first fee and you are quick to bring your account back into the black, a bank or credit union may be willing to waive the charge. Either stop at a local branch or call the company, admit your mistake, apologize and ask politely if there is any way the fee can be avoided.
This method can have success so long as you’re normally a customer in good standing. “It’s important to understand if you’re a repeat offender, there’s not going to be a lot of mercy,” Brown says.
3. Contact the business or person receiving a returned check or transaction.
In cases where a check has bounced, find out if your bank will try to rerun the check the following day. If so, deposit money in your account immediately, and the person or business cashing the check will never have to know you didn’t have cash to cover the check the first time.
However, if the check is being returned, you should call that person or business immediately. Do the same for an electronic transaction that was rejected. It’s better to be proactive about the problem than wait for the recipient to find out the bad news from the bank. Not only does the situation get resolved more quickly, but it may head off other negative consequences such as having a service canceled or an interest rate increased.
3 Ways to Prevent a Repeat Situation
Once you have addressed the immediate problem, it’s time to take stock of why it happened and make appropriate changes. “An overdraft fee is essentially a penalty fee and a sign consumers aren’t managing their money well,” says Shannon Johnson, head of deposits and payments at SunTrust.
Here are three suggestions to avoid future overdrafts.
1. Reconsider overdraft protection.
People have different opinions regarding whether overdraft protection is a good idea. Dickey recommends declining it. “Banks want you to opt in because they make a lot of money out of it,” she says.
Opting out of overdraft protection will ensure you can’t overdraw your account with your debit card. Without the protection, your purchase will simply be declined by a merchant. However, opting out won’t prevent bounced checks. In that case, overdraft protection can prevent the embarrassment of having to tell someone a check is being returned.
A middle ground may be to look for an overdraft option that will allow your bank to pull money from your savings account or credit card to cover any shortfall. There is typically a fee involved, but it may be substantially less than your bank’s typical overdraft or nonsufficient funds fee.
2. Pad your bank account.
Brown suggests people keep a $1,000 minimum in their checking account at all times. With that much padding in your account, the chances of making a math mistake or other error that would put you in the red is unlikely.
Not everyone has that much money to leave in their account, but maintaining even a smaller balance may be helpful. Then, use your bank’s text alerts or other notification system to know when your balance falls below a certain amount.
3. Keep an account ledger.
Mobile and online banking make it easy to check balances at any time, and some people may be tempted to forego tracking balances the old-school way with paper and pen. “A checking ledger for many people today might has well be a stone ledger,” Johnson says.
Although a checkbook register might seem old-fashioned, everyone with a checking account needs a way to record checks and automatic transfers that affect their balance. With today’s technology, that record could be kept in a spreadsheet, an app or within budgeting software.
Bank overdrafts not only cost you money, but they could also lead to a financial institution closing your account if you have too many. Plus, dealing with overdrafts can affect your ability to meet other goals. “If you’re always putting out fires because you’re always in the negative,” Dickey says, “it takes up all your time and energy that could be used for other, more important things.”
Not to mention you could spend that $30 on something you actually want or need.
Culled from US News.com
Written By:Maryalene LaPonsie is freelance writer who has been reporting on personal finance, retirement, higher education and insurance for more than seven years. You can connect with her on LinkedIn, circle her on Google+ or check out her personal website at The Mighty Widow