According to CNN Money banks collected more than $6.4 billion in overdraft and ATM fees in 2017. Many times instead of denying to pay an item if the account is too low, they will pay it and assess the normal overdraft fee. This may be a life saver if it happened once in a blue moon, however many people are doing it way too often. I had a client recently tell me that he hates to disappoint people. He would rather pay the $35 fee to the bank than have a conversation with a creditor, especially his landlord. We added up the fees he had paid the past 3 months and it totaled over $1,000. One thousand dollars!! That could have been an emergency fund. He could have paid some other bills with that. Or heck that could have been a small trip.
If you are caught in this cycle of paying off a negative checking account each time you get paid, the madness has to stop. You will never get on track let alone have financial freedom. It may hurt at first and could take some time, but I promise it will be worth it. Here is a plan to stop over drafting your checking and turn it around.
1. Stop all automatic withdrawals coming out of your account temporarily. Put Netflix on pause, call your car insurance company, and anyone else that has an eft payment. You can’t afford to let a $10 withdrawal cost a $35 fee. You need to be in control of when you pay things until you get caught up.
2. Make a list of everything that needs to be paid. If it can’t be done all in one month and still be able to eat, make a priority list and the others will get partial payments. Some things to consider: if rent is late, is your landlord willing to work with you or will they file an eviction? Credit cards charge annoying late fees the second you are late. It may make more sense to make minimum payments on the cards if possible. If you don’t care about closing any of them however, put them into a non-profit debt program which stops all late and over limit fees. The cards in the program get closed however, so any you wish to keep open, simply keep out of the program. Call the NFCC (www.nfcc.org) at 800-388-2227 to find out what your payment would be. You can also include collections and medical bills in a program like that. (They are unable to renegotiate loans however since they are a covered by a signed contract).
3. Determine how much cash you need for spending between pay periods. Take out what is needed for food, gas and some miscellaneous. For example maybe $200 bi-weekly will be adequate for spending, so pull in out in cash and leave your bank account as a bill paying account only. Use cash for spending and maybe purchase a gas gift card for fuel so it is covered. We spend cash more wisely, about 20% less than if we are using plastic because it hurts more to part with money. This will help keep your spending under control while you catch up bills.
4. Once you are back on track, begin an emergency fund. The only way to solve financial problems long term is to have some savings in case of emergencies, which cover a long list. Repairs, travel and gifts are the 3 biggest budget busters; however illness, loss of job, an error in subtracting your check register are examples of how life throws us curve balls.
Check with your bank or credit union and find out if you can have the option to decline a debit card transaction if the funds are not in your account versus paying it and charging a fee. It may be a little awkward in the checkout line but it will save you lots in unnecessary fees.
This is it. You are on your way to a solid financial future. Lots of love,
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Lots of love,
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