Knowing the right ways to avoid overdraft fees can help you streamline your finances and help you save more.
If you have been using an overdraft as a supplement to income, seek different ways to do so.
Too much dependency on overdrafts can make one forget that an “overdraft is a debt.”
Spending time on your overdraft is an expensive way to borrow money. Perhaps you had taken out money from an overdraft if looking for car finance with no deposit and no credit check.
There, no credit check because you find a comfort in getting a loan even if you do not have a credit history or struggling with poor credit score.
Although you might find it difficult to rid yourself of overdrafts, it is essential; to avoid falling into a series of debts.
Let’s first analyse overdraft fees.
An overdraft fee is a fee that is charged by the financial institution or bank every time you withdraw more money from the account that exceeds the total account balance.
For example, you have €50 in your account, but you use a debit card to make an online payment or write a check for €75. Under this, you need to extend your account balance, and the bank provides you with the remaining balance- €25 to clear the payment. The same bank charges you €30 overdraft. That means you are indebted to the bank for (30+25€). It eventually turns your account balance negative.
Therefore, it is important to avoid reliance on overdraft fees to incur your expenditures.
How much overdraft fee do you have to pay in Ireland?
According to the Bank of Ireland, an individual has to pay an overdraft fee of €30 on negotiation and auto-renewal.
Why Overdraft fee is a threat to finances?
- Pay interest until you pay it off
- The transaction might fail if you fall short of backup
- Risk of account seizing
- Lethargic debt collection
Thus, an overdraft fee is an unnecessary expense. Here are certain points to avoid overdraft fees altogether.
How to avoid overdraft fees?
It’s challenging to avoid overdraft fees since consumers are often hit with several overdraft fees in a day — it could be 1 or 10. It exclusively depends on their spending habits. Well, here are some ways that can help you avoid overdraft fees:
1) Reduce the amount you spend on overdrafts gradually
Reduce the dependability of overdrafts by analysing the budget and savings. Make sure you do all of it every month.
Find out how much you need to pay to be debt-free quickly by contacting your lender. Re-paying the debt will help improve your finances and eliminate dependability.
2) Use low-interest credit cards to pay the balance
You can transfer the repayment loan onto your low-interest rate credit card. Apart from this, you can even use a low-interest loan to pay your overdraft and then pay your loan with a defined monthly payment.
Or, if you are seeking to pay through credit cards by taking more of them, analyze whether you qualify for the same. The more credit cards you apply for, the more it will appear on your report.
3) Watch your account balance regularly
Check your account balance frequently and analyse whether you should invest in something big. You can check your balance via the mobile app or by visiting the branch. It will help you identify and plan your expenses and avoid any significant expenditure down the lane.
4) Deposit money quickly after an overdraft
When you know that a low balance has just triggered an overdraft, you might avoid an overdraft. Check if your provider has a daily cut-off time for adding money to an account or correcting a negative balance the very next day.
5) Set up account balance alerts
Some financial institutions alert you when you have a recognizable low balance in your account. Also, you can set up account alerts so that you are notified of any existing payments or deposits and know when to cover or deposit. These alerts will eventually help to cover any upcoming expenses, which could lead to a negative balance.
6) Ask for overdraft protection from the lender
Some banks and credit unions hold a solution to ensure overdraft protection. For instance, some banks can help you link your savings account to your checking account. When you overdraw money from your account, money will be debited from your savings account. It will provide overdraft protection.
If you aren’t covered by overdraft protection, banks might decline your transaction. Before enrolling for the same, read the terms mentioned in the fine print.
Research the overdraft plans well before applying for one.
7) Link additional account to cover shortfalls
Other methods help you avoid overdraft fees. As mentioned above, some banks allow the user to link a savings account or credit card to transfer money to cover shortfalls. Instead of incurring overdraft fees for insufficient funds, a transfer will be made from the account linked to the transaction.
There may be a fee associated with the same, but it will be less than an overdraft fee.
8) Ensure a cushion balance
Determine a certain amount that should always be in the account. And never use it. These extra savings in your account will help you pay forgotten subscriptions payment or bills.
Analyze how much you need every month and save more than that. Forget this money and carry out tasks usually.
9) Pay in cash than credit cards
It is essential to have a bank account. Instead of relying on credit cards or some other modes of payment, you can pay in cash. It will help you avoid overdraft fees. You can use the cash enveloping budgeting method. This method implies- dividing income into- bills, gas, groceries, fees, etc.
Once you realize how much you need to pay for each, you can create separate envelopes and pay accordingly.
The most significant benefit of cash enveloping is – budgeting
10) Ensure familiarity with overdraft policies
Overdraft is something that you need to keep a tab on always. Overdraft policies may vary from a financial institution to another. Ensure familiarity with the very concept of overdraft-like how, why, and when a bank can charge overdraft fees.
By having hands-on information and knowing the overdraft policies, you can learn the ways to avoid overdraft fees immediately on your account.
11) Review your bank statements
The best way to keep a tab on the account is to keep a tab on bank statements. Compare monthly statements to your check register. If you find any discrepancy in the same, address it immediately. This practice will never leave you short of funds; it will reduce reliance on overdrafts as well.
12) Keep track of ATM withdrawals
One of the easiest ways individuals miss track is by forgetting to record cash withdrawals from ATMs. It is one of the commonest problems of individuals. It is because of this; most individuals cannot keep track of their account balance and thus end up a prey-overdrafts. To avoid this situation, place your ATM receipts in reachable but safe places and refer to the same once you reach home.
13) Check out a new bank
If you are not happy with the overdraft fee terms and conditions of a bank, you can seek different options to suit your needs. Some bank services allow you to overdraft up to a specific amount, for instance, €200, charging no overdraft fee. Yes, certain firms do that!
If you find yourself in trouble of continuously paying an overdraft fee, you can consider this option.
14) Switch to 0% overdraft
If you find the above options more or less helpful, you can switch to a 0% overdraft option.
It gives you some time to pay off your bills without paying interest. Well, the account you choose entirely depends on your financial stability and the circumstances, like bad credit car finance in Ireland.
There is no guaranteed overdraft limit. It bases your credit score report. In most cases, this 0% overdraft is valid for only 12 months. Beyond this period, pay a particular sum. This sum ensures an interest-free overdraft payment.
Some additional tips to avoid an overdraft fee:
- Check the merchant profiles before paying online with credit cards. Make a note of the purchase in a register.
- Keep track of your payments by pushing the money from your bank account and determining whether you have enough money to carry forward a transaction.
- Analyze the transactions and expenditures and keep a tab on the overall balance in the account.
- Consider using mobile apps to monitor balance.
So, these are some tips that may help you avoid overdraft fees altogether and maximize your savings simultaneously. While considering a bank to oversee overdraft policies, make sure the bank protects your wallet for real.
In concise, monitoring account balance routinely, setting-up account alerts, and maintaining a safe cash net helps in avoiding overdraft fees.
Empower yourself to make informed financial decisions and keep aloof from indulging in an overdraft debt trap.