Over the past 10 years, I have met with hundreds of bankruptcy clients. While they each have a unique story, they also share many common problems and hefty overdraft fees is one of them. Some banks charge as much as $35 per overdraft which means that a $5 coffee can end up costing you $40 if you’re not paying attention.
I would estimate that the average client spends about $3000-$4000 per year on overdraft fees, most of which could be easily avoided with a little planning. Imagine what you can do with an extra $4,000 this year?!
Here are a few tips to help you eliminate those nasty overdraft fees and keep more money in your pocket this year.
When asked, most people will tell me that they have a budget. But what most people actually have is a loose idea about what they spend each month. Unfortunately, this idea is usually not consistent with reality.
Simply put, a budget is a master plan for your finances. You cannot spend more than you have; if you do, you inevitably end up in debt. Budgeting ensures that you spend within your budget, helps you to control discretionary spending and accumulate savings.
For simple step-by-step instructions on creating a budget: https://leclawonline.wordpress.com/2019/11/08/dont-play-games-with-your-future/ Once your budget is complete:
Review = If you end up with a negative number at the end of the month, you have a problem. It means you’re overspending and explains why you’ve been over-drafting so frequently. On the other hand, if you have money left over at the end of the month (a surplus), you’re off to a great start.
Adjust = If you have a problem, you’ll need to scrutinize your expenses with the goal of reducing or eliminating anything that’s not strictly necessary (in other words, things you literally cannot live without). PRO TIP: Start by reducing or eliminating the non-essential items like expensive cable packages, large cellular data plans, hair/nails, alcohol and eating out (that means ‘cheap’ eats and food delivery, too).
On the other hand, if you have a surplus, you should make a plan for how you’ll use it, putting a good portion aside for savings. If you have savings, an emergency won’t force you to rely on credit cards AND you can avoid overdraft fees by linking checking with savings (most banks will allow you to cover overdrafts from your savings account, at no additional charge) . PRO TIP: You should set aside 10-20% of your disposable/surplus for saving each month. This will also ensure that you have enough cash on hand when those less frequent payments (like real estate taxes) become due.
I am not so out of touch with reality that I expect anyone to eliminate all of their unnecessary spending. We all need a “treat yo’self” item here and there. So you should also set aside a portion of your surplus for ‘discretionary’ spending which you can use for those luxury and convenience purchases. For example, hair and nails, alcohol and cigarettes, and social events (like dinner or the movies). PRO TIP: Using debit cards makes it more difficult to track your spending. Instead, set a weekly limit for discretionary spending and carry this amount in cash; when the cash runs out, so does your spending.
Either way, the most important rule of budgeting: you cannot spend more than you have. You may have to sacrifice some of your discretionary spending, but it will always pay off in the end.
Don’t ignore your bank statements. With online and mobile banking, there’s no reason not to know exactly what is going on with your account at all times.
Get in the habit of reviewing your bank activity on a monthly (or even weekly) basis. Compare your spending to your discretionary budget, and make sure you are not exceeding your budget. If you spent over your budget by even $10, that means you have to deduct it from somewhere else, which either means that some bill is not getting paid in full this month, or you will be facing the dreaded overdraft fee.
By checking in regularly, you’ll sooner notice if your account balance is lower than planned. So if you’re still a few days (or more) away from your next paycheck at this point, you may have to make further adjustments. However, now you will be able to better predict when an overdraft event may be coming, and can take steps in advance to avoid it.
Now that you have a budget and you’re reviewing your bank activity regularly, you’re empowered to make overdraft fees a thing of the past.
For example, reconsider automatic bill pay. While it’s wonderfully convenient, and avoids forgetting to make a payment, it is one of the biggest reasons that overdraft fees occur. You might be only $25 short for your car payment, but that can cost you another $35 if that payment overdrafts your account. And then, every auto-payment or charge after that will generate another and another overdraft fee. Certainly, you don’t want to miss something as important as a car payment, however, if you know in advance that you will come up short, you have time to plan and adjust.
Call your lender and ask for an extension. Most lenders will grant a 5 or 10 day extension with no fuss at all. If that’s not an option, transfer funds from your savings (if it is truly emergent or necessary). If your savings won’t cover it, ask a friend or family member for help. Then, immediately repeat step one (budget) and make adjustments to avoid this problem in the future.
Certainly, not all overdrafts can be avoided. However, if you carefully budget, stick to your budget, and build savings, you will have an arsenal of powerful weapons aiding your financial future.
Even though I am 100% confident that my plan will help you to eliminate overdraft fees, I also understand that sometimes, life happens. Unexpectedly you have a medical emergency, your car breaks down, your hours get cut at work, you or your spouse become gravely ill or disabled. Sometimes, no matter how much we plan, debt cannot be avoided.
When that happens, most people have to turn to credit cards. And may times, once you start to accumulate debt, it snowballs until you can no longer even keep up with the minimum payments.
But escape is possible. Bankruptcy is merely a 10-letter word for HELP. The law provides relief to people who need it, no matter their situation. Bankruptcy offers a second chance and a fresh start, and it’s easier than you think.
Benefits of Bankruptcy
- Eligible filers eliminate 100% of credit card debt in as little as 4 months
- Relief begins immediately upon filing (end harassing collection calls and protect yourself from lawsuits, wage garnishments and repossession)
- Start rebuilding credit immediately after filing
- Pre-filing payment plans (for legal fees and court costs) are readily available
Still unsure about Bankruptcy? Read through many frequently asked questions in one of my earlier posts: https://leclawonline.wordpress.com/2018/06/14/bankruptcy-faqs/
Dispel all of your bad notions about Bankruptcy! Read Bankruptcy Myths Debunked! in one of my earlier posts: https://leclawonline.wordpress.com/2018/12/18/bankruptcy-myths-debunked/
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