Overdraft Fees and Bad Credit

One of the biggest reasons why a lot of Americans have bad credit these days is because of overdraft fees charged by banks.

A bank charges overdraft fees when an account holder writes checks or makes payments in an amount that exceeds the level of money in the account. The account becomes overdrawn and the bank charges a fee which can range between $35 and $100.

How Overdraft Fees Can Clean Out Your Bank Account

Overdraft fees have become a major source of income for banks. The banks won’t say it but many of them want your to overdraw your account because they make money off of it.

Many banks have made it easy to overdraw your account. One way they do this is to pay debit card charges even if the account is empty. If you make several debit card purchases with no money in your account the bank can hit you with several overdraft fees.

This can quickly get a bank account overdrawn by several hundred dollars. If you get direct deposit this can eat up all over you salary and leave you with no money.

Avoiding Overdraft Fees

The way to avoid overdraft fees is to watch your bank account like a hawk. Sign up for online banking and check your checking account everyday. If possible use the e-mail alert feature so your bank will send you an e-mail record of your bank transactions everyday.

You have to do this because with modern electronic banking your bank account can change instantly. Never believe the paper statements your bank mails you these are usually several days old and usually not accurate.

Write as Few Paper Checks as Possible

You don’t want to write paper checks because you don’t know when these will get cashed. A check is good for ninety days so somebody might sit on it for weeks or months. It may take several weeks for a big company to cash a paper check. That means the check you think cleared weeks ago might still be out there and come in and clean out your account.

Instead, make as many payments electronically as you can. Don’t use the check book at the store, use your debit card or pay cash.

Use Electronic Bill Pay

If your bank gives you an electronic bill pay option use that to pay as many bills as possible. When you use electronic bill pay you decide when the payment goes out and how much goes out. This means you know the money has left your account and the bill has been paid. There is no check to get lost in the mail and you won’t spend money on stamps.

If your bank doesn’t have this option find another bank or go to the utility or creditors’ website and see if you can pay the bill via debit card or electronic check. When you do this make sure they charge you an extra fee for it.

One electronic option to avoid is automatic debit or automatic bill pay. This is a bad deal because it lets the utility or creditor take the money out of your account when they want to. That takes away control and leads to overdraft fees.

Change Your Account

Ask your bank if you can set your account so that it won’t pay debit card charges if there’s no money in the account. That way you can’t run up debit charges and overdraft fees if your account is empty. It’ll also let you know that there’s a problem with your account. If your bank won’t do this find another bank.