If we’ve heard it once, we’ve heard it (and said it) 100 times that 2020 is a year we want to forget! The pandemic caused such sickness, loss of loved ones, social isolation, fear, shutdowns, job losses and poverty.
For many, this was a continuing financial burden but for some it was the first time of true financial crisis in their lives.
In March of 2020, federal regulators encouraged banks to waive their overdraft fees amid the public health crisis that has caused unemployment to soar. Instead, the average penalty has reached a record high of $33.47, a recent survey by Bankrate.com found. And checking account providers are expected to take in more than $30 billion in revenue from the fees in 2020, according to data provided to CNBC by financial research company Moebs Services.
Yet, while many banks came out early in the pandemic with policies to help customers, including waiving overdraft fees, many of those relief measures have now ended, according to Ken Tumin, founder and editor of DepositAccounts.com.
Not only are you charged an individual overdraft fee each time a charge hits, you can also be charged a daily fee if your account is in the negative more than 5 days.
To avoid the fear of ever overdrawing on your account, I recommend a three- step approach:
- Establishing an emergency fund. Without an emergency fund, when (not if) something happens out of your normal budget, you won’t have to decide between paying for the emergency or paying your electric bill, charging it to a credit card, or risking an overdraft fee.
- Create a budget and live on it. Assigning a job to every dollar before it ever gets to your account, and then disciplining yourself to stop impulse buying, will keep you from accidentally spending more than your income.
- Live on the cash envelope system! The cash envelope system (true cash or digital envelope system) will detox you from swiping that debit card and not keeping track of how much you’re spending. When the cash is gone, you’re done spending, period.
What to do if something unusual happens and you do overdraft? First, call the bank and explain your situation. Likely if this is your first-time overdrawing, they will reverse the fee.
Even though banks don’t report overdraft occurrences to credit bureaus, effecting your credit score, it can negatively affect you with your banking institution. The only way it can affect your credit score is if the overdraft goes long enough that the account is sent to collections. If you ever have your account closed involuntarily because of a negative balance, it will be hard to open another account at another bank.
Also remember that you have given your bank the permission to charge you an overdraft fee if a charge hits that can’t be covered. You can tell your bank not to cover that and there won’t be a fee, and your charge will be declined or returned. There are instances where a bank will still charge you if you can’t cover a reoccurring bill that’s automatically taken from your account, even if you don’t give them overdraft permission.
When you take control of your finances by living on a budget that truly works for your family, you will gain such a freedom from worrying about things like overdraft fees. Do you have that freedom today? If not, give yourself an opportunity to change that now by scheduling a complimentary consultation so I can offer you the specialized help you need! Click here to easily schedule that consultation!