Avoid Overdraft Fees

August 27, 2009

Debit cards are considered by many to be one of the greatest innovations of the past few decades. First issued in the late 1980s, they offer the convenience of a credit card without the expense of using borrowed money. Since they’re linked to our bank accounts, they simply give us quick access to our own money.

The debit card has long since surpassed the check in terms of popularity. Consumers today are happy to swipe their cards when they make a purchase instead of having to write out the payee and amount. But unfortunately, those who use debit cards have a tendency to overdraw their accounts, resulting in expensive overdraft fees.

Overdraft fees have become quite common, but they aren’t a fact of life for debit card users. They can be avoided if you’re careful. Here are eight ways to steer clear of them.

1. Keep an up-to-date record of your transactions with a running balance. This was common practice in the days when checks were most commonly used, but it’s often overlooked by those who use debit cards. If you subtract each debit from your balance when it’s made, you’ll know how much is in your account so that you can avoid overusing your card.

2. Keep track of bank fees. Those monthly and below-the-minimum fees are not usually large, but they can be large enough to cause an overdraft if you’re cutting it close. Know what day of the month they’re assessed on, and subtract them from your balance then so it will be completely up to date.

3. Check your balance online, but be aware that it may not always be accurate. Even though you can easily check how much you have in the bank at its website, it’s important to keep track of your transactions. Some might not show up right away.

4. Pay for small purchases in cash. The purchases that are just a few dollars each tend to be the ones that get us in trouble, because we don’t feel that they’re large enough to make an impact and forget about them. Paying for them in cash instead of with a debit card can eliminate this problem.

5. Avoid using your debit card to pay for gas, lodging and car rentals. When you do, the merchant often places a hold on the funds in your account, and it may or may not be for the actual amount spent. This can throw off your balance, and could result in overdraft fees when you didn’t actually overspend.

6. Keep extra money in your account. Having an additional $100 or so that you pretend is not there is a simple yet effective way to prevent most overdrafts.

7. Opt out of courtesy overdraft protection. The allowance of overdrafts is a service provided by your bank to prevent your card from being declined. In most cases, you can opt out of this service so that if you go over your limit, the transaction will simply be denied. Many consumers are put off by this, but it can save you lots of money in overdraft fees.

8. Have your checking account linked to a savings account or line of credit for use in the event of an overdraft. You will probably have to pay a fee each time funds are accessed from these accounts, but it will be much less than an overdraft fee.

Overdrafts can take a big bite out of your budget. By following these tips, you can steer clear of them and maintain greater control over your finances.

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