People often find themselves short of money in the middle of a month without a clue. It was an embarrassing moment when you were unaware of the insufficient balance in the account. To your relief, banks cover the cost with an overdraft to ensure the payment is successful.
However, the ban charges their customer some fees whenever they use the overdraft facility. Generally, it is caused by some unnecessary expense when the financial condition is already unstable. The only solution to avoid overdraft fees is the effective management of finances by eliminating needless purchases.
Here, you will find some tips to manage your account balance and avoid the situation where an overdraft is the only solution.
1. Save Emergency Fund
You can avoid the overdraft situation if you have an emergency fund to cover the cost at the time of need. Start saving at least 20% of your income until you have a month of salary saved in the account. This will be the cushion to protect from the overdraft situation.
You need to establish a minimum account balance that will act as an emergency fund. This fund is different from the savings account for a serious financial emergency. Though, you can use it to pay during the time of financial distress.
2. Frequently Check Account Balance
A common reason for overdraft is because people lose track of the account balance. The insufficient fund catches them off guard, and they unknowingly end up with an overdraft. The solution is simple here, check the account balance at least twice a week.
You can avail of notifications from the bank regarding the account balance. It will take only a couple of minutes to take a glance at the number on the message. It will also help you keep track of the expenses and maintain the budget.
3. Automate Payments
You can automate fund transfer from your account to pay the bills and mortgage on a selected date and time. This will avoid the unwarranted deduction from your account that may cause an overdraft. Also, it will avoid late fees because of the missed payments.
The reason to avail automated payments is the false sense of funds in the account. It takes time to process funds transfer to your account after the deposit is made. Your paycheque can take a week to get cleared. In the meantime, you can make the mistake of using the overdraft service instead of the account balance.
4. Set Payment Alerts
Ask the bank to send you payment alerts every time a transaction takes place from your account. You are simultaneously keeping track of the expenses and account balance to manage the finances better. It is time to use the credit lines if the account balance is below the minimum amount defined in the first tip.
5. Cancel the Overdraft Service
You can cancel the overdraft service to eliminate the slightest chance of its fees. Call the bank representative, and they will guide you through the process. After successful service withdrawal, the payment will be declined if the account balance is insufficient.
It is not always the best solution as you might get stuck in a financial emergency. You cannot rely on a credit card or another account to make payments every time, as they might face trouble with the bank’s server or something else.
6. Create a Line of Credit
You can use the other line of credit, such as loan or credit cards. These services may cost less than the overdraft based on different factors. Credit card payment is generally free of cost if you pay the bill on time.
It is recommended to have one of these services at your disposal to counter the financial emergency. Sometimes, the overdraft limit is way less than the required amount to make the purchase. You can get loans for bad credit with no guarantor on benefits within a few hours for these situations.
7. Connect the Accounts
Some banks provide the customers with an option to connect their savings account to the current account. This eliminates the need for an overdraft if the balance in your current account is low. A transfer will take place during the payment from your savings account.
You will save money on the overdraft fees with the use of a savings account. However, it will make keeping track of account balances a little more challenging. You will also find it hard to increase the savings if you already have a hard time maintaining the budget.
8. Use Prepaid Cards
Another solution here is to ditch the traditional debit cards as they make the payments regardless of the account balance. You can use prepaid cards to make payments while avoiding overdraft. These cards ensure only the amount deposited is used for purchase.
They will help you manage the budget more efficiently with controlled spending. There will be no unnecessary purchases as the money in the cards will be limited. You can also the credit cards to avoid overdraft and get some discount with the additional purchase.
9. Switch to Low-Fees Banks
You can switch to a bank with low fees on overdraft if getting rid of it is not an option. It will save you substantial money in the long run. Some may offer you promotional offers with discounts on debit card payments once you start the search.
You can compare the overdraft fees of different banks easily on the internet. Your current bank can also offer you relaxed fees after your exit application.
In the end, there are some ways you can easily avoid overdraft fees, such as credit cards and prepaid cards. It is essential to keep track of your account balance to maintain a steady account balance.