How to Stop Overdrafting
Overdrafts happen when you spend more money than you have on your bank account. Overdrafts are a big problem for Americans. According to the CFPB, 27% of Americans overdraft. Those that do pay on average $225 a year! To put this into context, that’s like carrying a credit card balance of over $1,100 all the time.
Banks make it hard to avoid overdraft fees on purpose. According to the same report, those kinds of fees earn them 61% of their consumer revenue. With all that income at stake, no wonder they make it hard to stay on top of pending transactions, your balance, and impending fees.
Ain’t nobody got time for that! How do we fight back? Here are a few strategies and tips we put together for you!
First overdraft? Get it waived!
Call your bank! If it’s your first overdraft fee, there’s a good chance they’ll waive it – not bad getting $35 for 15 minutes of work. Even if you overdraft regularly, you still might get a waiver if you explain your situation to them. Worst case scenario you get a “no.” Unless you are getting paid more than $515,000 per year, this is worth your time. We did the math.
Have Charlie track your expenses for you
We get it – you cannot stay on top of every check and pending transaction. This is a big reason why we’re building Charlie! You can always ask Charlie how much you have available to spend on your accounts. However, since banks always notify us a couple of hours late, make sure you leave yourself some cushion.
Disable or modify your overdraft protection
You can disable Overdraft Protection, and you will never be hit with another fee again. If you spend money you don’t have, one of two things will happen. If you are enrolled in Overdraft Protection (FYI, you usually are), the transaction goes through, but you get slammed with a $35 Overdraft fee (that’s $35 for every transaction you make while in the red). If you opt out, then the purchase is simply declined and you have an awkward moment at the checkout counter. Banks usually allow you to opt out of just the debit / ATM overdraft protection. Your automatic bill payments and checks are still protected.
If you must have Overdraft Protection, banks often offer alternative better programs. Some banks let you use a savings account for overdraft protection. They transfer money from your savings to your checking to cover an overdraft. Some offer an overdraft line of credit. The bank will create a loan for you to cover the overdraft. Sometimes that service is free or costs just $5 per overdraft (instead of $35).
Of course, both of these alternative programs have their own gotchas. Banks, right? If your savings account doesn’t have enough money, you’ll be charged the overdraft fee AND the $5 transfer fee. If you use a line of credit, you have to specifically tell your bank to pay down the loan or else mysterious interest payments will keep appearing every month.
Switch to a friendlier bank
There are a few rare banks that hate overdraft fees almost as much as you do. We like CapitalOne 360 the most – they don’t charge overdraft fees and have virtually no fees in general.
If you’re not attached to your current bank, those are some options that may help a lot.
Our personal favorite – The Earnin App
Earnin allows you to cash out the portion of your next paycheck you’ve earned early and apply it to your bank balance. Overdraft avoided! Unlike loans, with Earnin you don’t run the risk of piling up debt since all you are doing is getting access to your paycheck a bit earlier.
Our favorite part about Earnin, though, is that they don’t charge you fees or interest! You just pay whatever you think is fair for the service. We did some math and found out that our Earnin users are half as likely to overdraft than our average users.
To qualify for Earnin, you need to have direct deposit enabled on your checking account and don’t work from home independently (there are some exceptions). Once you’ve connected your bank, the app can send you up to $100 a day (up to $500 per pay period) and can even automatically top up your balance if it falls low.
Earnin is a much better way to avoid the occasional cash shortage than an expensive overdraft fee. However, getting in the habit of frequently accessing your salary early is not the best financial habit for the long run! The better option is to find a way to always have enough savings to cover unexpected expenses. Easier said than done. If you know of an easy way to do that, please let us know – we are fresh out of ideas on that front.