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It's easy to overdraw your account if you're not keeping track of each transaction you make. Unfortunately, overdrawing your account can create a domino effect of negative consequences, including late or missed payments, fees and account closure—if you don't get your account back in the black quickly. Taking the following steps can help you resolve the situation quickly and minimize the damage.
1. Transfer Money Into Your Account
It's essential to deposit money into your account as soon as you realize it's overdrawn. When you attempt to pay but don't have enough money to cover what you owe, your bank may decline the transaction and charge an insufficient funds (NSF) fee. Or it may cover the charge and issue you an overdraft fee.
If your financial institution denies multiple payments or covers charges even when you don't have adequate funds in your account, you may rack up fees for each transaction.
Some banks also charge continuous overdraft fees that get assessed every day your account has a negative balance. Additionally, merchants may charge a returned payment fee if your payment is declined. You need to get your account back in the black to stop incurring fees.
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2. Balance Your Account
After you deposit money into your account, it's a good idea to go back through your transactions and balance your account to see where you stand before making any more payments.
This will help you determine whether you've accounted for all your transactions, have outstanding checks that haven't been cashed or there are upcoming payments that will be debited from your account. Having an accurate record of the money coming in and going out lets you know whether you have enough money in your account to cover your previously denied and upcoming payments.
3. Pay for Any Denied Purchases
Late and missed payments can lead to service disruptions, and merchants may charge a late fee if they don't receive your payment on time. Whether you bounced a check or set up an electronic payment that couldn't be processed because you had a negative account balance, getting caught up on your payments is crucial. Depending on the merchant, you may be able to pay by mail, phone or online. Before sending your payment, make sure you have enough money in your account to cover each transaction. Otherwise, you will continue to accrue fees.
4. Ask Your Bank to Refund Any Fees
Contact your financial institution and ask if they'll refund fees you incurred because you overdrew your account. Your bank or credit union isn't required to, but they might if you ask—especially if this is an isolated incident. Different institutions have different rules about waiving fees.
Some offer grace periods that give you time to bring your account to a positive balance before assessing an overdraft or insufficient funds fee. Others offer ways to qualify for a fee waiver. If your bank or credit union won't waive the fees, you must pay them—or they may close your account.
5. Set up Overdraft Protection
If you overdraw your account with an ACH payment or by bouncing a check, many banks and credit unions will pay the bill anyway—even if you don't have enough money to cover it. This service can help you avoid late payments and the fees they might generate, but your financial institution will charge an overdraft fee for doing it. Fees vary but are often around $35.
Many financial institutions offer protection from these fees by allowing you to link another bank account to your checking account. If you attempt to make a payment and your checking account doesn't have enough money, your bank or credit union will automatically transfer money from your linked account to your checking account to cover the transaction. Some institutions charge a transfer fee for this service, but it's usually much lower than the overdraft fee. And many don't charge any transfer fees.
6. Set up Account Alerts
If you have mobile banking through your bank or credit union, chances are you can set up alerts to help you avoid overdrawing your account. Here are several to consider:
- Low balance alert: Receive a notification when your account balance drops below a certain threshold. These alerts can remind you to add more money to your account or stop making purchases to avoid overdrawing your account.
- Payment reminder alert: Get alerts when a payment due date is approaching so you can make sure you have enough money in your account before the transaction is processed.
- Transaction alert: Receive a text or email for each transaction on your account. These can help you keep track of deposits and purchases and how they affect your account balance.
- Recent deposit alert: Keep track of recent deposits to know whether you have enough money in your account to complete a transaction.
7. Research Checking Account Options
Banks and credit unions offer multiple types of checking accounts to serve various needs. Because different accounts have different fee structures and minimum balance requirements, you may be able to find an account with another institution that charges fewer fees and is more aligned with your spending habits.
Choosing a bank or credit union that doesn't charge overdraft fees or offers protection from them can help safeguard your financial health.
The Bottom Line
Overdrawing your account can put you in a cycle of missed payments and fees that can jeopardize your financial health. Taking steps like tracking your deposits and purchases and setting up account alerts to proactively avoid overdrawing your account can help prevent these negative consequences. If you do overdraw your account, it's essential to take action immediately to minimize the damage.