Linked to your checking account, the overdraft works as an “extra balance” and becomes available automatically when you do not have funds available in your checking account for debits such as checks, DOCs, TEDs, and fees.
It is practical and fast and therefore may seem the most appropriate solution to solve immediate financial problems. The truth is that it is not so special and can lead to bigger problems: a high debt.
Banks offer this service because it is easily used by customers. Account holders, however, pay a very high interest rate to use this feature, which increases with each day when the amount is not met. Using the overdraft, instead of eliminating a debt, you will be creating an even larger one. To get away from this ghost, we have selected some tips that help you avoid overdrawing and gaining financial awareness.
Use only in an emergency
The overdraft should only be used in case of emergency (medical expenses, car repair, replacement of something essential at home and other unforeseen situations). This credit, available in your account at any time, has a higher cost than other types of loans.
If you owe on the overdraft, you spend about 7.9% per month only with the interest payment, remembering that the rate varies according to the bank. On a personal loan of 12 months, with a rate that can be 5% per month, your interest expenses will be much lower.
Overdraft is useful when you are short of funds at some point and will have, for example, some important account or a check to be discounted. The best way not to pay abusive fees is to make conscious use of overdraft, avoiding the formation of outstanding balance. And remember that after using it you should start saving to pay off the high interest rates as soon as possible.
If you need money, make a loan
Payroll deductible credit, with direct payroll discount, has the lowest market interest rates and can be used to pay debts, rather than opting for overdrafts.
Personal loan is also an option but depending on the amount you intend to get from the bank, it will undergo more stringent approvals.
Save all documents
The special check is signed by agreement, which must specify the credit limit granted, the deadline for payment of this limit when used, the interest rates when the consumer does not pay on the due date and their monthly variations, the term of the contract and the forms of cancellation and renewal.
All documentation regarding the overdraft must be saved so that you can be sure what you are paying. The documentation includes a copy of the original agreement, the current account statements and your credit line.
Plan your budget
Simple as it may seem, arranging all fixed expenses on a worksheet is absolutely necessary. Make a list of all the monthly expenses: medical insurance, rent, financing, studies, food, transport among others, and a second list of all sporadic expenses such as leisure, pharmacy, clothing, residential and car insurance, IPVA, IPTU, etc. This is a great way to keep track of all the expenses, how much money you will have to pay for these expenses and how your money is being managed. One suggestion is to use an Excel spreadsheet or a financial controller, which can be downloaded over the internet, so it becomes easier to have a budget organization and update that data.
Control your bank account
Remember to check the statements each week to check the balance of the account and the discounts of the services provided by the bank. Do not leave accounts in automatic debit is a way to help better control the outflow of money.
Always try to use cash or debit card to pay your bills, so you avoid extra charges on the amounts. Always be aware of the amount available to control your expenses.
Request cancellation of limit
If you can not control yourself at the time of shopping, it is best to ask your manager to remove the overdraft limit from your account. As it is not a mandatory service, there are no restrictions to remove it. In that case, it becomes easier to be aware of the expenses and to manage the budget accurately.
If you have problems canceling the overdraft. Take a copy of the documents (contract, statements and other existing documents) and look for a consumer protection body or a lawyer.
Following the tips, it becomes easier to be aware of your spending and avoid using the overdraft.