Worried Rising Prices Will Drain Your Bank Account? Here's How Dave Ramsey Suggests Avoiding Overdraft Fees

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KEY POINTS

  • Inflation has surged, so prices for goods and services are much higher, also making it harder to stay within your budget.
  • This also increases the risk of bank overdraft fees.
  • Finance expert Dave Ramsey has offered some suggestions on how to avoid overdrafting, including making a budget and paying in cash.

Don't get hit with fees for overdrafting your account.

Inflation has hit a 40-year high, which means the goods and services you buy every day are a lot more expensive than they were before. Unfortunately, when prices rise, it's harder to spend within your limits and avoid overdraft fees. These fees are charged when you try to spend more money out of a bank account than you actually have available in that account.

The good news is, you don't have to pay costly overdraft charges if you follow these simple overdraft avoidance tips from Dave Ramsey.

Live on a budget

Dave Ramsey is a big fan of getting on a budget to take control of your spending. As a result, it's not surprising that the finance guru's first tip for avoiding overdraft fees is to make this type of spending plan and stick to it.

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"If you don't want to spend another dime on overdraft fees, the first thing you need to do is get on a budget," he urged. By setting a budget and sticking to it, you will always make sure your spending is below what your earnings are. If you don't spend more than you've put into your checking account, then you won't have to worry about garnering overdraft fees.

Of course, it can be easier said than done to make sure you're actually sticking within the spending limits you set. Tracking your spending can help with this. If you use an app or manually write down purchases, you can make sure you know exactly where you are in terms of how much of your budgeted amount you have spent.

Use cash or a debit card to pay

Ramsey also suggests changing your payment method in order to avoid overdrafting your account.

"If you have cash, you always know exactly how much money you can spend at any given time (it's literally in your hands, after all!)," the Ramsey Solutions blog reads. And as for debit cards, while it is sometimes possible to overdraft with them depending on how they are set up, you can actually choose not to have this option available to you with most banks.

"Debit cards are handy because you have to opt in to the bank's overdraft system in order to get hit with those fees," Ramsey explained. "If you don't opt in and then overdraw your account, your card will get declined. Embarrassing? Yes, but at least you don't have those fees adding salt to your wounded pride."

Avoid overdraft protection

One surprising thing Ramsey does not recommend is signing up for your bank's overdraft protection service. Most banks offer this, but it's not usually a very good deal for you.

"If you overdraw your bank account and you have overdraft protection in place, your bank may automatically move money from your savings account (or some other linked account or line of credit) to your checking account to cover the difference. But a lot of banks will charge you a fee for this 'service' too," Ramsey warned.

Ramsey is absolutely right about this. You don't want to pay for a service that's designed to save you on fees. What you can do, though, is opt for a bank that won't charge overdraft fees at all. A growing number of banks have eliminated them and it's worth looking for one that won't charge you for not having enough money, thereby making your situation worse.

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