Tips for Breaking the Overdraft Cycle

preparing for tax season

The overdraft cycle is quite vicious and can be difficult to break. When budgeting monthly household expenses, it can be easy to overspend in various categories. Most commonly, it is easiest to overspend in the food/groceries and entertainment categories. This combined with reoccurring automatic charges can easily cause your bank account to become negative. In addition to this, you will very likely be hit with overdraft charges, which average about $35.

To make matters worst, it often takes several days for the notification of the overdraft to reach you, and you may be continuing to spend, and racking up many more charges.

This can form a vicious cycle, because it will affect the upcoming amounts of money you deposit into your account. It means that you will have less to spend, and it really can be a difficult cycle to break. Each year banks and credit unions collect billions of dollars in overdraft fees. It is a large scale issue and a major concern for consumers.

An article published by Consumer Reports which states, “About 15 percent of consumers overdraw at least once a year, according to a Pew research study conducted in 2013, the latest data available. Among overdrafters, about one-third paid three to nine penalties in the previous year, and 16 percent paid at least 10 to 20 penalties.”

Breaking the Cycle

So with that said if you end up over drafting on your bank account, here are the steps you will want to take to break this cycle:

Overhaul Your Household Budget

In general, it is very important to develop a household budget you stick to each and every month. However, it is very easy to lose track of your finances. Spending leaks or unnecessary monthly subscriptions are usually a catalyst for over drafting on a bank account. Therefore, it is important to make cuts quickly by reviewing all of the non-essentials. Some changes you might want to consider are pausing your gym membership or steaming subscriptions for a couple of months, as well as taking more drastic measures such as permanent cut backs on your budget.

Ask your bank for a courtesy waiver

If you have multiple overdraft fees, it never hurts to ask your financial institution to waive a few of those fees. While some banks may not grant this, others might have a “one-time” policy. You will want to keep in mind that if they do grant you this that it may be your only “get out of jail free” card.

Boost your funds by producing extra income

Nothing is more effective in eliminating your overdraft fees like new forms of cash flow. This may include making extra money from landing a part time job or gig (e.g Uber/Lyft, Door Dash or Amazon Prime). Iff you have extra space, you could could list it on Airbnb. You can also figure out what clothing or excess items you can sell to make a little extra cash.

Begin a savings account

As a bonus tip, you will want to develop an open a savings account and link it to your primary checking as a protective measure. Overdraft protection can protect you by transferring money to your checking account to cover the transaction. Although you still may have to pay a fee, the fee is much cheaper than an overdraft coverage fee.


If you would like help getting started on a budget or setting up a savings plan, call 888.577.2227 to set up your free appointment with an LSS Financial Counselor.


Author Ray McCoy is a certified LSS Financial Counselor.

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Posted in Budgeting, Emergency Savings, Financial Counseling

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