Ask a Nerd: How Can I Avoid Overdraft Fees From Overspending?

If you’re like me, you’re probably feeling the same grateful I-don’t-need-to-buy-so-much-shopping-for-another-year-sigh of relief this week. But even after the year-end holidays are over, you might still see the ghosts of all your purchases on your bank statement, especially if you’ve overspent to the point of overdraft and are dealing with extra fees.

Relying on overdraft coverage — where you spend more than you have in your checking account and have to rely on your bank to pay for your transaction — as a remedy for overspending can be costly. Many overdraft fees are $30 or more per incident, and you can be charged multiple times if you continue to spend. Here are your options for overdraft protection and some tips on how to avoid overdrafts during the next big spending season.

Common overdraft protection options

Here’s my brief breakdown of the overdraft protection options that banks typically offer:

Overdraft protection transfers. Many banks allow you to link your savings account to your checking account and withdraw your savings to cover the cost of an overdraft. But be careful: some banks charge a fee for this service.

An overdraft line of credit. An overdraft facility can be a very expensive option. It will cover the cost of your overdraft but will likely have an interest rate comparable to that of a credit card.

A grace period or buffer amount. Many banks introduce longer grace periods where you won’t be charged for a day or two after your overdraft to give you time to fund your account. Some banks offer buffer amounts, which means that overdrafts up to a certain amount, e.g. B. $100, are covered until you are able to deposit more funds into your account.

Optical output. If you don’t want to worry about overdrafts, you can opt out of all coverage options and your bank will simply decline any transaction that would result in an overdraft. This way you avoid fees, but it can also be inconvenient if your debit card isn’t accepted when trying to make a purchase.

Banks take steps to make it easier for customers to deal with overdrafts, but there are also many tactics that can reduce the likelihood of an overdraft.

Prepare for the future to avoid overdraft

Here are some other tips to avoid overspending:

Set up low-balance alerts. Most banks allow you to set up low balance alerts, where your bank will send an SMS, email or a push notification to let you know when your account falls below a certain threshold, e.g. B. $50. This service can give you an indication that you need to be careful with your spending.

Keep an eye on automated payments. Automatic subscriptions and bill payments can come as a surprise, making low balances and overdrafts more likely.

“Keep track of any regular automatic payments and put them on the calendar to remind you when they should come,” Nia Adams, personal finance educator at Perspectives, said via email. “Often the funds come out on different days depending on when weekends and holidays fall.”

Look for a bank with a better overdraft policy. If your bank is particularly strict with their overdraft fees, now is a good time to look around, as many banks are reducing or eliminating their overdraft fees altogether.

Budget for the next holiday season. Perhaps holiday spending is a regular trip wire for your budget and overdrafts become a higher risk for you at this time of year. If that’s the case, you should reconsider your spending on gifts.

“Create a holiday-specific schedule,” Patrina Dixon, founder and CEO of It’$ My Money, said via email. “Try to favor sentimental gifts over expensive ones.”

She suggested framing photos from happy memories with your loved one.

“Or,” she added, “make a gift list by person and add an actual gift suggestion and the maximum dollar amount you’re willing to spend on each.” Make sure the total is reflected in your budget.”

Consider using a prepaid debit card. If you want to limit your spending, consider getting a prepaid debit card during a spending season. Because the card is not linked to an account, you cannot overdraw and use the card like a regular debit card.

Budgeting takes a lot of willpower, and the holidays can be a melting pot that will put your spending habits to the test. But with a little planning and account setup, you can be better prepared for the expenses that come with the season.

The article Ask a Nerd: How Can I Avoid Overdraft Fees from Overspending? originally appeared on NerdWallet.