Let’s Talk Overdraft Protection and How to get out of it
Of course, I know about overdrafts of course uh duh!
Who better to tell you about overdrafts than the master at using money that isn’t theirs? Yours truly!
And I know Im not the only one because young-adults do use it a lot. Especially in college, overdrafts can be the ultimate lifesaver.
But, however you want to call overdrafts, they are still debts and a lot of times we say yes to that disclosure without properly listening or reading to it terms. I learned by paying a lot of overdraft fees.
That is why I have taken it upon myself to highlight a few things about overdrafts and how we can gradually pay it off.
Why am I sharing? Because I want to see young people with fewer debts. And not a lot of people actually talk about overdrafts compared to credit cards.
Disclaimer: The stories I tell and everything I say come from my own personal experience and interpretation of using this product/service. This is not an overdraft manual and if you do choose to purchase such service or similar to any institution you should seek proper financial counsel first.
Let’s start with the basics.
What is overdraft protection? How is it different from a Credit Card?
Theres is a difference between overdraft and credit card even though they work similarly.
On the hierarchy of debts, overdrafts may be the least serious or costly
You know how I said in my
That makes no sense! Come again!
Overdrafts are mainly connected to your debit account. So, In case you wanted to pay for that $5.50 meal but only had 5 bucks. They just take care of that .50 accident.
However, they will charge you for using the overdraft service and interest on whatever amount was used.
Unlike credit cards, you dont go into overdrafts if you actually have available funds and whatever funds you put into your debit account goes into paying off those overdraft fees first before your account becomes positive.
For example, your account is at a -40 because of an overdraft charge, if you put $100 in your account. That money takes care of that negative balance first then you are left with $60 that is actually yours.
What do the banks say about it;
Overdrafts are really not a bad idea for taking care of those
These banks really charge you more when you don’t have enough smh!
One thing you should know before you apply;
Sometimes they do a hard credit check which can take a hit on your credit score. Although, I didnt get to do that the two times I added it to my card. Yes twice!
I was pre-approved. Pre-approved means you went to get a service from them which in my case was a credit card. Because they already checked my credit during the credit card application. They score I had qualified for a similar product which was an overdraft. They pitched it to me and I agreed. Dumb!
Let me just say, their pitch can be very convincing but tbh they have targets to meet. So that overdraft you said yes to, is in their metrics benefits not yours.
This doesnt also mean every time you apply for a credit card, you get pre-approved for an overdraft.
Two things they don’t tell you often.
- You need to keep your account positive for a period of time: This varies depending on what bank you use. But, they do require that at least once every month, your account needs to be on a positive balance for a full business day.
Some people really don’t know that at first.
I didn’t at first, I paid when I felt comfortable paying.
Quick tip: get your bfs paycheque and put it in your account then return it after.
Lol! Don’t do that!
That would help for that purpose but it really doesnt provide the incentive to pay it back. And by doing that, you will continuously stay in debt and frustrated about your debt.
2) Ridiculous fees: They tell you about the fees but they dont tell you how ridiculous the fees are.
Do you know, that they literally can charge you up to $5 per transaction?
I think its madness. You make a total purchase of $20 at 4 different times in a day. For each purchase, you get charged an additional $ 5. You are paying the bank double what you used in the first place.
Oh! And plus interests on your outstanding payments!
But, some institutions do offer a monthly fee program where you can pay a certain amount per month and get unlimited purchases. For example, instead of paying $20, you pay a monthly fee of like $5 and you can make as many transactions as possible
Practical Ways to Help You pay it off;
Call your bank; Call your bank and gently request them to waive petty inexpensive fees. Customer service representatives can waive fees as a courtesy gesture especially if you have been a long-time customer.
You can explain your financial goals to them to make them understand the reasoning behind your requests. They tend to be empathic and want to help. After all, the company’s objective is to help keep you as a customer. If those petty fees will make you happy and stay then it shouldn’t be a problem for them.
Now, you can get those stuck up agents who are so unwilling to help. You can sense it by the tone and manner they are using to speak with you once you start engaging with them. If you do, just hang up and wait to speak with a different rep that is having a good day.
If they do call you back (hang up again, tell them kennie said so!)
This made me want to talk about a horrible company, their aim is to ruin your day but that’s for another time.
Unnecessary expense: Check through your bank statements and find those monthly subscriptions that are not needed and you can do with that. You will be surprised at how many subscriptions you pay for that you really don’t use.
Till this day, I still enrol in different free trials and forget that I connected my bank accounts to it. The next month comes then I see a charge on my card.
Quick tip: Connect all your free trials to a debit account that stays empty with no overdraft. After the trial, they charge you it just bounces back in their face lol. More importantly, deactivate that service to prevent future charges in case you do put money in it.
Also if you have already been charged, file a complaint requesting a refund. Most times, they do give you a refund back especially when they notice little or no activity on the service account.
Still, need some help cutting down unnecessary expenses then check here
Get a student account: If you are a student, you can take advantage of student accounts that banks offer. Some banks even allow you to keep the student account a year after you graduate
From my understanding, there is no age restriction, you just have to be a student. With a student account, they tend to put limit on how much charges and what charges you can incur every month.
Student accounts may be a little restrictive in the number of times you can make free purchases and stuff. But, if the goal is to save money then it’s perfect.
Quick tip: If you had a student account but your account got switched to a regular account and you are still a student. You can leverage that to get reversals from the bank.
Downsize: This may sound extreme but it really doesn’t have to be. Downsizing is also a way to reduce unnecessary expense. You can downsize on anything. It simply just involves finding cheaper alternatives to do things.
For example, you home internet is costing you $70 for both cable and Wi-Fi. If you can do away with the cable and stream using the Wi-Fi, why not just pay for only that and it will cost you $40.That will save you some money that can go towards paying off your debt.
Or maybe you want to eat-out so why don’t you go with a coupon.
If you need help finding coupons, this might help.
Banking apps: Bank apps are actually an effective way to set financial goals and track your progress. They also help you monitor your spending and provide recommendations to help you accomplish your money goals. There are other apps that perform a similar function that isn’t owned by a bank. The point is, get one of those to keep tabs on your finances for better management.
Heres a pic of what one looks like;
Reduce your limit: As you continuously make progress towards paying it off, try reducing your limit. If you had a limit of $900 and you have made up to $400, try to reduce your overdraft limit to $500. The lesser the amount, the more incentive you have to pay it off. And, don’t start using up the amount you have already paid because it only sets your goals back.
These are just a few ways to pay off your overdraft but remember it does take you setting a goal and making it a priority.
You can still take baby steps while making it a priority. All your paycheque doesn’t need to go into paying it off.
You just need to be intentional in your approach from when you start planning the process till you eventually pay it off. Make sure that you take time to plan and set a time frame for tackling that debt.
Also, make sure your everyday actions even the most petty purchase are in accordance to the financial goals you have set for yourself.