You can't avoid some bank fees, but others you can. An overdraft happens if a transaction comes through your checking account and you don't have enough money. Overdraft fees vary by financial institution, but can range between $25 and $45. It's a costly fee that can quickly snowball. For that matter, here are seven of the best ways to handle an overdraft fee.
1. Don't Ignore It
Pretending an overdraft fee doesn't exist isn't going to make the problem go away. Your account will stay in the red, and if you don't pay back this money in about two months, your bank may close your account, making it harder for you to open a new bank account.
2. Negotiate with Your Bank
If you owe a lot of money, speak with your bank immediately and negotiate repayment. Rather than pay the bank all the money at once, they may accept smaller payments over a few months. In most cases, banks are willing to work with account holders who go into the red. But you have to call and ask for assistance.
3. Ask the Bank to Waive Some of the Fees
Sometimes, an overdraft isn't your fault. You deposit a check into your bank account, but this check bounces. If you've written any checks, a bounce check given to you can send your account into the red. And unfortunately, you're charged an overdraft fee for every transaction that comes through your account while it's in the red. Go to your bank and explain the situation. If you've always been a loyal, responsible account holder, the bank may waive some of the fees.
4. Stop Additional Transactions
The moment you discover your account is overdrawn, don't make any new transactions with your debit card and don't write any checks. If you have pending transactions, let the bank know, and they might place a hold on your account and waive any additional overdraft fees.
5. Sign up for Overdraft Protection
Going forward, ask the bank about overdraft protection. There are two ways to receive this coverage. The bank might extend a line of credit to you, just in case your account is overdrawn. The bank pays the charge, and you pay back the line of credit. Or, you can open a savings account with your bank, link it to your checking account, and if your account overdrafts, the bank automatically transfers money from your savings into your checking.
6. Don't Deposit Your Paycheck - Just Yet
If your account is in the red and you receive your paycheck, don't deposit your check into the account just yet. This is especially true if you need this money for immediate bills. Depositing your paycheck reduces how much you'll have for bills. For example, if your current account balance is $-250 and you deposit a paycheck for $700, $250 of this check goes toward bringing your account back into the black, at which time you'll only have $450 for bills.
7. Borrow the Cash
The sooner you fix the overdraft, the better. Until your account is cleared up, you're unable to use your checking account. For that matter, consider borrowing money from a parent or sibling, and then repaying your relative in small monthly payments.
Overdraft fees are expensive and can quickly grow into a larger problem. So it's important that you handle an overdraft as soon as possible. What are other tips for dealing with an overdraft fee?