Action Steps for When Your Bank Account Gets Overdrawn
I’m sad to say that I had a bumpy summer financially- nothing disastrous, thankfully, we just had a few hiccups.
I had not one, but two incidents in my personal checking account and one in my business account! Yikes! Oh the shame of being a financial literacy advocate and role model. Where, oh where did I go wrong? Well, I guess that’s why I’m here- to show you all the financial booby traps and help you avoid them.
What happened exactly?
Well, for starters, I am transitioning from my database consulting business to being a full-time blogger. I needed just a tad more flexibility due to home schooling my kids full-time this year (I usually have help, but this year, I’m going it alone with the help of an online curriculum.)
I had a lot of expenses that just came directly out of my business checking account when I was making tons of money in consulting. It took me awhile to pare down the expenses and cut off what wasn’t necessary. I was a little too late taking care of every auto-deductions and got caught in a low-cash flow cycle….BAM over draft fees. Terrible, I know.
On the personal side, I had an unexpected charge kick in and because we typically drain our checking account on payday to avoid over-spending. There’s wasn’t anything there to cover the most random automatic deduction. Then, the second time was totally my fault. I was trying to make a HUGE transfer from my savings to my checking and accidentally did a withdrawal! It was a typical case of mom brain- being up late, getting frazzled and in the middle of a ton of stuff. My bad.
So, what should one do when faced with an overdrawn bank account?
Here’s what I came up with:
Make Sure the Offending Charge(s) are Not Fraudulent
The first thing I did was check my account to see what had kicked me into overdraft. On one occasion, I was very concerned that there might have been a fraudulent transaction, but after examining my transactions, I found it was all me, LOL. If you are a victim of theft and/or fraud, call your bank immediately and tell them about the incident. They should take steps to file a claim and investigate the matter for you. Many times, they will remove the charges and related fees if they are, indeed, fraudulent.
Ask Your Bank to Reverse the Charges
I don’t know why, but for my business account, I didn’t even bother asking for the reversal (though I might now that I am reminded of it!) But for my personal account I asked for a reversal the first time it happened. Since it had really been so long (like years) since I had an issue, they gladly reversed the fee. The second occurrence this summer wasn’t technically an overdraft, but I was on the verge of being negative due to that large withdrawal that should have really been a deposit. I caught it in time and asked the bank to put a stop payment on the pending transaction and they did. They charged a $30 fee for that.
Funny thing, the phone banking rep. said it was done, but when my husband went to the bank to drain the account like normal (we like to use cash to avoid going over budget) he saw that the charge was still pending! He talked to a personal banker who informed him the phone banking rep. had not put the stop payment through!
The personal banker was nice enough to do it again for him and reverse the fee. When I checked the account the next day, I saw the transaction was cancelled but that the fee had not ben reversed. My husband went back to the bank (with paperwork the personal banker had given him the day before) and asked for the charged to be removed as promised. Sigh…Yes, it took a little work, but we got our money back. Unfortunately, it seems like you get better results when you go into the branch and plead with puppy-dog eyes for mercy.
A Post-Mortem to Find the Root Problem
So because we are team debt free and are supposed to have our financial *stuff* together, I felt compelled to do a post mortem of sorts to find the issue. Were we living beyond our means again? Did we have too many deductions? Were we spending frivolously?
After looking through things I did find a few culprits:
- Auto-deductions: There was something random, like a yearly charge, I had not accounted for. I thought I had cleared out pretty much all but one single bill from our auto-deductions, but I hadn’t. I found it right away and cancelled it.
- Cash-flow: So technically cashflow has not been negative, but it had been lower than usual due to me starting a new venture and just a butt load of expenses coming up this past year: from car repairs, to property taxes to my daughter’s mammoth actor’s union initiation fee…we’ve been slammed hard! Though there was not a direct correlation between cashflow and this incident, it made me do more digging and evaluating. It resulted in me making a temporary change in our tax deductions to squeeze a little more cash out the regular paycheck. But I still want to bring this up because, in times pas,t we were sometimes cash flow negative (meaning there was not enough income to cover expenses each month) which can cause persistent overdrafts and check bouncing.
Tweak Your Bank Account Auto-Deductions
If you find that automatic deductions are the the culprit, either turn them off totally or change the way you handle them. You can do one of two things: only deal with cash and pay everything manually or move all your automatic payments to a credit card or a savings account with no debit card attached. Not only will this save time, but it will save you money, late fees and NSF fees. WARNING: Do not EVER use a credit card if you cannot pay off the balance each month!
Fall for Overdraft Protection
In the early days of my NSF prime, I remember being offered this service from the bank when I went to get yet another overdraft free reversed. Turns out it was just another way to put us deeper in debt. Overdraft protection, allows you to make debit card purchases even if you don’t have the funds available in your account. You get charged a fee each time they cover these transactions for you. If the transactions pile up, there might be interest and additional fees tacked on the longer your account is overdrawn.
There are new laws that govern how these features are activated and operated, so read the fine print or better yet, opt out all together.
Instead, opt for DIY overdraft protection. Set-up text alerts or emails that give you daily account updates. Again, new laws make it possible for you to cover a pending transaction in time before it totally clears and kicks you into the negative. I’ve had a few close calls, but due to alerts, made quick transfers to avoid being overdrawn.
Looking for better ways to manager your money? Check out my free eBook, Get out of Debt Now. I’ll show you how our family climbed out of over $120K in debt through budgeting and increasing our income. Enter your email below to get access to it: