4 Ways to Avoid Overdraft Fees

Overdraft fees are fees that are levied when you use your debit card so much that its balance falls below zero. When you overdraft, the bank has to use its own funds to cover your withdrawals. The overdraft fees allow banks to get that money back. Unfortunately, it isn't always obvious when you overdraft, and the banks don't usually bother to set you straight until your next monthly bill arrives. Thus, it is up to you to make sure you don't overdraft. You can make it a lot easier by taking the following steps

1. Carefully Read the Fine Print

Oftentimes, overdraft fees exceed the value of the money you withdrew, allowing banks to make some profit off your overdraft. Because of this, many banks won't be upfront about overdraft fees and how much they will cost you. They may either put this information in small print or bury it within paragraphs of legal language. This is why you should carefully read every part of your debit card contract. If there is any part you don't understand, consult a lawyer and/or your local customer advocacy organization.

2. Create a Buffer

One of the easiest ways to avoid overdrawing is to create a buffer--a portion of the checking account that you won't spend, no matter what happens. That way, no matter what else you may do with your money, you will always have enough funds in your checking account to keep you from overdrawing. It is up to you to decide how much money you want to put in a buffer, but you have to make sure it's something you can afford to maintain.

Of course, maintaining the buffer is tricky, and it will require a lot of discipline. Your best bet is to mentally subtract the buffer amount every time you check your balance. That way, you won't take the buffer into account when you figure out how much you have left to spend.

3. Make an Effort to Balance Your Checkbook

If you find yourself spending so much that you are constantly on the verge of overdrawing, you may want to take a long, hard look at how you spend your money. At the end of each month, add up your expenses and compare them to your total monthly earnings. If the former exceeds the latter, your checkbook isn't balanced.

To balance your checkbook, look at all of your expenses and see if there is anything you can reduce or cut altogether. The trick here is to cut just enough to ensure that your spending totals don't exceed your monthly earnings. There is no need to cut any more than you have to, especially when it comes to essentials, such as grocery shopping, transportation costs and rent/mortgage payments. If your bank offers checkbook balancing services, consider taking advantage of them, especially if they are free for their debit card holders.

4. Opt Out of the Overdraft Fee Service

If all else fails, you can always opt out of the overdraft fee service. This will require you to fill out some paperwork and, in most cases, pay a fee. Opting out will limit your ability to pay, since without overdraft fee service, having zero balance will mean that your card will simply be rejected. Also, if you write a check while your checking account is overdrawn, you will be charged a check bouncing fee, which is even steeper than an overdraft fee. Thus, when you opt out, you still have to be careful about how you spend your money--though, all things considered, that probably isn't a bad thing.