Understanding Overdrafts And How To Avoid Them

Introduction

Overdrafts occur when you spend more than you have in your checking account. They can result in costly fees and other negative consequences. However, with proper precautions, overdrafts can be avoided. In this lesson, we will discuss some tips for avoiding overdrafts in your checking account.

1.            Regularly Check Your Checking Account Balance and Transactions

To avoid overdrafts, it is important to track your spending and know exactly how much money you have available in your checking account. Get in the habit of checking your account balance and transactions regularly. Remember to track all transactions, including small debit card purchases, which can add up and throw off your budget.

2.            Use Online Banking and Mobile Banking Apps

Take advantage of online banking and mobile banking apps to keep track of your checking account. Personal financial management applications can identify useful insights to help you manage your spending.

3.            Know Your Bill Due Dates

Knowing your bill due dates is crucial to avoiding overdrafts. Try to time bill payments after paydays or when you expect to see money in your checking account. Many lenders allow you to change your monthly payment due date, so take advantage of this option if needed.

4.            Know When You’re Getting Paid

If you have an inconsistent paycheck, it is important to adjust your spending accordingly. Be aware of any delays due to holidays or other factors.

5.            Set Up Notifications

To serve as a backup to regularly checking your checking account, set up notifications to receive timely alerts when your account balance dips below a certain amount.

6.            Leave a Small Cash Cushion

Consider leaving a small cash cushion in your checking account to avoid overdrafts. This way, even if you set up automatic bill payments before your next paycheck, you are less likely to run the risk of an overdraft.

Further Reading