Stuck In the Overdraft Cycle? Here's How to Break Free

It's one of the worst feelings in the (financial) world.

Have you ever experienced the drop in the pit of your stomach that comes from accidentally overdrafting your checking account? I have. It's been several years since it last happened to me, but I still remember the "Oh no" feeling it gave me. If you spend more than what you have in your checking account, you've just overdrafted or overdrawn the account. Maybe you didn't realize that you didn't have quite enough money to cover a check you wrote, or you didn't notice that your balance was too low before you swiped your debit card. Now you've got a fee to pay, on top of having a negative account balance.

Overdraft fees cost Americans an average of $250 per year, according to research by the Consumer Finance Protection Bureau. They fall under the umbrella of checking account fees commonly charged by banks, and often cost about $35 apiece. Overdraft fees can add up fast, and if you overdraw your account frequently, you could find yourself reported to ChexSystems, a reporting agency that aggregates information about Americans' banking habits. That could make it harder to open new bank accounts in the future. Any way you slice it, overdrafts are bad news. If you keep finding yourself with an overdrawn checking account, here are some tips to break the cycle.

Talk to your bank

If overdrafts are becoming a problem, it's likely you've already heard from your bank. If you haven't, I recommend giving that customer service line a call, or check out the bank's website to see what options you have. Many banks offer overdraft protection programs; commonly they involve linking your checking to another account (often a savings account), so if you overdraw your account, the amount you're short will come out of the linked account to cover it. There may be a fee charged for this service, but it will be less than a standard overdraft fee. If you've racked up some overdraft fees and are panicking about being in the negative on your account, see if your bank is willing to waive some or all of them. They might be willing to work with you if this was an unusual occurrence and you're normally a customer in good standing.

Check your balance frequently

If you don't already have the habit of checking your bank account balance regularly, it is worth acquiring. These days, it couldn't be easier to check your bank account to make sure all is well. Many banks have robust web presences and mobile apps that you can access from anywhere that has wifi or cellular coverage. Failing that, you can call your bank's customer service number and get an update on your balance. Many banks also offer text and email alerts, which will be sent if your balance dips below a set amount. I have one set for my accounts that alerts me if I drop below $100.

Leave yourself a buffer

In these inflationary times, it's a good idea not to keep too much extra money in your checking account. That said, it can be really helpful for your peace of mind to leave yourself a buffer. I try to aim for around $100-$200, just in case I have a small surprise bill or something is debited from my account when I'm not expecting it (for example, my auto and renters insurance bill is set to autopay and it can be hard to predict when the insurance company will actually take it out).

Keep track of your spending

Along with regularly checking your balance, living on a budget can be a great way to keep track of where your money is actually going. If you've never made a budget before, don't be intimidated; there are great budgeting apps out there to help you get started. I'm kind of old school, so along with my simple spreadsheet budget, I also rely on a spiral notebook that acts as a sort of checkbook register (I don't write checks often). When I get paid, I jot down my bank account balance, then do the math to see how much I'm left with after I pay bills and move money to my high-yield savings account. This way, I always have an idea of how much money I should have in my checking.

Consider switching banks

For some banks, overdraft fees are actually becoming a thing of the past. There are a few banks that no longer charge them at all, and others that have reduced them from $35 to $10. If your bank hasn't jumped on this bandwagon yet, consider changing banks to one that has.

Increase your income

If you find yourself running out of money between paychecks, look at increasing your income. This could be in the form of a side hustle, a raise at work, or even a new full-time job altogether. Living paycheck to paycheck is incredibly stressful, and in addition to taking a toll on your finances, it can also harm your mental health if you're always worrying about having enough money. Trust me, I've been there.

It is possible to break the overdraft cycle and keep your checking account in the black. Try some of these tips and see how much better you'll fare.