It's happened to the best of us. You're doing great with your finances and feeling pretty confident about your long term plans to save enough to buy a house. Then suddenly, it seems like a wave of unexpected expenses come your way. Your checking account is now overdrawn.
This isn't the end of the world, but you need to act fast to make the best of the situation. The last thing you need to happen is getting caught in a storm of bounced checks and paying for fees that will drain your funds even further. If that wasn't bad enough, it could affect your credit, which will make that dream of owning a house harder to make happen.
Banks will typically charge you a fee that ranges between $20 and $40 when you overdraft on your account. If you wrote a check for the overdrawn amount, you could also pay additional costs for a returned check fee. These costs can really add up, which is money you would probably rather use for something like a nice dinner out with your family.
These steps will put you in a better position to minimize the negative implications from being overdrawn.
Immediately stop using the account
Any extra expenditures need to stop immediately. That means your daily lunch takeout, the ingredients you pick up from the grocery for dinner, and those happy hours need to be paid alternatively. Unless you have bills that are due, you should keep a lid on that account.
It might be a consideration for you to have your paychecks cashed versus depositing them. Unless you're ok with your bank using your paycheck to pay for the overdraft fees and other charges, you should do this.
You will need your paycheck to cover expenses like medication and gas while you get your situation under control. That means any spending on things like movies, new electronic gadgets, or other nonessentials should be paused until your account is out of the red.
Some other expenses that you could consider putting a red light on while your account is overdrawn are:
- Any automatic payment that comes from your account
- Subscriptions such as Netflix or Hulu that you have. Put them on hold if possible, for now.
- Gym memberships or other memberships that will allow you to freeze your account
Review and balance your account manually
Sometimes a piece of paper and pen is the solution. You need to get a good idea of how much money you will need for your situation. Be sure to list out the overdraft fees and returned check charges that you have incurred.
You can check your account online to see your balance, what you've spent, the checks that have cleared, and your direct deposits that are scheduled, as well as any other outstanding payment you might have.
If you have a checkbook, they typically have a ledger that can help you figure out our situation. That might only be helpful if you have been keeping track of your expenses, though.
Balancing your account may seem very old school, but when you're in a situation where your account is overdrawn, you need to take old school measures. In addition, there are apps out there that may help you, as well.
When you're having problems with overdrafting your account, you need to start recording all your transactions that you make on a daily basis. Be sure that you know when these transactions are clearing your account to keep yourself in the black.
It comes down to much more than checking your balance every day. Keep in mind the following:
- You will need to go back months in the past to identify where your first overdraft occurred so you know where your problems started and what you need to do to resolve the issue.
- Overdrafts will quickly snowball and cause you more trouble when you consider the additional fees you are going to have to pay.
- Identify the amount of money you will need in order to get your account out of its negative status as soon as possible.
Get out of the negatives
This needs to happen as soon as possible to avoid additional fees. Take as much of your paycheck as you can to get your account in the positive.
It might also help for you to go to your financial institution and talk to a banker. They might be willing to waive your overdraft or returned check fee in some cases, particularly if this is your first offense. Banks have their fees listed in black and white, so your best bet is to be sincere and polite if you are going to ask. Consider these when you are wondering if this might be a viable solution:
- Asking to have the fees reversed in a courteous manner won't hurt you. The worst they can do is say no. If they concede it's going to make things easier for you, so you don't have anything to lose.
- Review your bank's policies to figure out if they will charge you a fee for each day you are overdrawn. This could add up quickly, so you need to factor this into your plan.
- Borrow money from a family member or trusted friend if you able to for you to use to bring your account into the positive. The faster you are able to bring your account up to speed, the more likely you are to avoid additional fees.
If you have found yourself in a bad situation where you're not going to be able to quickly pay your overdrawn account, you need to talk to your bank. See if they will allow you to set up a payment plan so they don't go and report you to ChexSystems or potentially damage your credit score.
Monitor your account closely
As soon as you have your account cleared, you need to create a budget and stick to it to prevent this scenario again. Again, it's not enough to just check your account everyday on your app or at the ATM. Not all your transactions may have cleared. Keep a ledger of everything that's coming in and out of your account to avoid a repeat of your overdrawn situation.