Debit cards are easy to use. In fact, some studies show that people spend 20% to 30% more when they use debit cards rather than paper checks. This can certainly create problems if you don’t keep track of your expenditures. If you’re asking yourself how to overdraft a debit card on purpose, this is the right article for you. If you don’t have enough money in your checking account, a $1.50 soda could end up costing you $36.50 – or more! When you spend more money than you have in your account, and your bank covers it, it’s called an overdraft. Some people have to resort to extreme situations, when they really “need cash now” and will apply for a personal loans, while others talk to a debt relief company to see how to get out from under oppressive debt.
There have been some changes in regulations that might give you a little relief from the vicious cycle of overdraft fees/negative balance/can’t pay bills. However, in general, there are several ways your debit card can cause your account to overdraft.
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What does overdrawn mean on a debit card
It means that you are going to use your card and purchase an item while you don’t have enough funds on your checking account. If you opt-in for overdraft protection with your bank, the transaction will go through (you will go home with the item you purchased) and you will be charged an overdraft fee – usually $35.
Can you overdraft a debit card at an ATM
The short answer is yes! But you need to make sure that you opted-in for that option at your bank. Overdrafting at an atm will actually end up cheaper that using your debit card multiple times. Indeed, each transaction is charged $35, so you better withdraw $100 and pay $35 in fees than using your card for a few smaller purchases that will cost you more than $100 in fees.
Can you withdraw from a negative account
Yes, you can! As long as you opt-in for an overdraft protection with your bank, you will be able to withdraw from a negative account and save yourself the embarrassment of having your debit card declined at the store. Withdrawing from a negative account can be especially useful when you really NEED to purchase things before just your next paycheck comes in.
If you find yourself in a situation where you actively want to overdraft, you should consider using other protection services. For example, the Pockbox.com app lets you borrow up to $2,500 in minutes. Make sure to know what your APR will be, but using PockBox could make you save hundreds of dollars on overdraft fees in 3-4 months.
Why do people overdraft
Not Tracking Purchases
The old-fashioned paper checks did have one advantage to budgeting – they left a paper trail. You could track your purchases by counting check stubs, even if you didn’t take the time to fill them out. Carbon copy checks actually help you to tally up your exact expenditures. But, with a debit card, all you have to prove you’re spending money is a receipt – which is easily lost. Some people use a checkbook register to enter every debit card purchase and calculate their balance after every use. In truth, some form of accounting similar to this is about the only way to ensure that you don’t spend more than you have in the bank. Even if you write a paper check, they are now electronically processed and withdrawn from your account at the POS, or point of sale. You don’t have 2-3 days to cover the check. So, track your purchases.
Early Debits of Scheduled Payments
Gym memberships, insurance payments, even medical bills can be scheduled for automatic payment from your bank account. You usually get to choose the date for the withdrawal. However, each of these payments can be claimed up to 4 days early! If you were counting on your mid-month paycheck, and a holiday is coming up, you can expect those draft payments to go through BEFORE your paycheck comes in. This, of course, can overdraw your account.
Watch Out for Pending Authorizations
Say you have $50 in the bank, and need to get $5 of gas. You use your debit card. One of two things will happen – your card will be denied, and you won’t know why, or you will be charged a $35 overdraft fee, even though you did not overdraft your account.
Why does that happen? Because of pending authorization. When you put your debit card into a gas pump, it automatically debits your account between $60 and $70. That’s about what it would cost to fuel even the biggest gas tank that is street legal.
If you pump your $5 worth of gas, the vendor authorizes the smaller purchase, crediting your account with the balance. But – you have already overdrafted your account with the $60 debit. BOOM! You are hit with a $35 overdraft charge. You might as well have put $40 in your tank, because that’s what it’s going to cost you. And forget about lunch, because you just spent that money on overdraft fees. Hotels do the same thing. Watch out for pending authorizations.
You may think that your debit card use is immediately recorded in your account. It sure seems to be at the gas pump! But the sad truth is that many purchases don’t show up for 24 hours. If you track all of your own spending, this may not be a problem, but if you are counting on the bank’s accounting, this can put you in a world of hurt.
Allow Overdrafts VS. Not Allowing Overdrafts
Your bank will give you the option to allow overdrafts. There are benefits and penalties for overdraft protection:
- You pay a $35 overdraft fee per transaction
- Your checking account balance can go into the red
- You don’t have to pay retailers a returned check fee
- You avoid late fees for bills you have paid, because the bank covered them
Not Allowing Overdrafts
- Return check fees add up
- You have to pay with a money order if your check is returned
- Your debit card will be declined at the register or pump
- You will often have late fees added to accounts for which the check payment was returned
- Retailers may refuse to accept your checks
Overdrafting on Purpose
The word “overdraft” certainly has a negative connotation, and no one wants to overdraft their accounts on purpose. However, by allowing overdrafts, it means that your payments are covered. If you are not prone to overspending, then allowing overdrafts can help you. If you have a hard time living paycheck to paycheck, allowing overdrafts can wreck you financially, as it is very expensive to pay each fee.
Savings and Apps
With most banks, you can even overdraft a savings account that is linked to your checking account. If your checking account goes into negative balance, the bank automatically transfers money over from savings. Many banks do this free of charge. Others charge a service fee. Or, you can get one of the many apps available that will allow you to make the transfers yourself free of charge.