If you have accumulated debt that is starting to get out of control, consider turning to certified credit counsellors who can steer you back toward financial stability. One of the things you will learn is managing your money carefully so that you are not spending more money than what is in your bank account. Understanding overdraft protection and its alternatives will help you avoid spending more than what you have.
An overdraft occurs when you write a cheque or have a payment withdrawn for more money than the balance in your account. The result is a bounced cheque or overdrawn account, which can lead to overdraft penalties charged by your bank. You can also get charged a fee by the party that you wrote the cheque to. Occasional overdrafts are not a big deal, but penalties can add up over time up to hundreds of dollars per year. That’s why you need to manage your budget.
What Is Overdraft Protection?
As overdraft protection, a bank can offer you a line of credit that your chequing account draws from in the event you spend more money than your available balance. What is overdraft protection particularly good for? The service is designed for people who don’t want to bother managing their budget, which typically costs them interest charges for the floated amount, rather than a monthly fee. That’s another expense that you don’t really need to pay if you just take the time to manage your finances.
While overdrafts can seem embarrassing, they can happen to anyone once in a while. Some banks made the news during the financial crisis for deliberately mixing up the chronological sequence of withdrawals to trigger overdraft fees. But usually it’s the customer’s responsibility that it happens, due to not paying attention to the available balance.
The key is to not let overdrafts happen regularly. They can be avoided completely if you constantly balance your chequebook and know how much money is in your account. Many times overdrafts occur when someone writes several checks at once and doesn’t bother to do the math. Since most banks give you access to your account at any time through phone or internet, you can always double check your current balance in real time.
Any type of transaction, whether it involves a cheque, debit card or automatic payment, can trigger an overdraft, depending on how your account is set up. If you use automatic payments for services like utilities or your phone bill, make sure that when you plan your budget that there will be sufficient funds in your account at least the day before the transaction is scheduled to occur. Never assume that if you deposit the money on the transaction date that your account will be covered. If you have no way of depositing the sufficient funds on time into your checking account, then see if you can postpone the payment.
Overdraft Protection Considerations
There are sensible alternatives to overdraft protection so that you don’t have to throw money away each month on fees. Check with your bank to find out about the various types of overdraft plans. If none of them suit your needs, then start researching other banks.
For more information about budgeting your money wisely and avoiding overdraft charges, get in touch with the team at Credit Counselling Services of Atlantic Canada today.