You were recently charged an overdraft fee and you want to know – what does overdrawn mean? It simply means that your account has a negative balance. Any transaction you now make will cost you a lot of money! The way the banking system works in America is quite straightforward. Every transaction that will bring your account from positive to negative (even if it’s a $3 Starbucks coffee) will cost you the price of the good (in this case, a coffee) + an overdraft fee (usually $35). That coffee just cost you $38, yes. It’s not the end of it. Any other transaction you are going to make when your account is already overdrawn (negative balance) is going to cost you an additional $35.
It tactically means that your bank could charge you more than $100 in overdraft fees in one day if you make a few transactions (with your debit card or with a check).
Opt-in for overdraft protection
To avoid overdraft, you could just decide to not opt-in for overdraft protection. Let’s make this clear: overdraft protection means that you CAN overdraft (and pay a fee of $35 per transaction). By default, you shouldn’t be enrolled in an overdraft protection service – that’s the overdraft law banks are required to comply with.
Is overdraft negative or positive
Well, it really depends on your situation. I would definitely say that it is negative as a whole because it is very expensive and having a negative balance in your checking account is never an ideal situation. But it could also be considered as a life-saver sometimes.
Overdraft could be ideal for once in a while emergencies. If you ever tell yourself “man do I need cash right now” or “I need a loan“, online lenders will probably be a better solutions (larger amounts and less expensive).
- Very easy to use (just swipe your debit card)
- Overdraft = small loans. It’s a cash advance when you don’t have enough cash in hand and really need some money
- Very straightforward fee policy. You are charged a fix fee for every transaction you make
- Fees are really expensive and usually do not reflect the real cost for your bank (they charge you outrageous amount because they can)
- Overdrafting often can lower your credit score and can have an overall negative impact on your financial life
- It creates a vicious environment where it’s ok to take multiple loans and be exposed to shady businesses. People who overdraft often usually take high-interest loans (such as payday loans) very regularly.
What does overdrawn mean on a debit card
It means that you use your debit card to overdraft. If your debit card is linked to the checking account that allows overdraft, that’s it! You just have to swipe your card and if you don’t have enough balance when you’re paying for a good or service, your account is going to be overdrawn automatically.
The other way checking accounts are overdrawn is with an overdraft check. In this case, you just need to make sure that you opt-in for overdraft protection. Then, you can write a check as long as you stay in the limit of what was defined by your bank.
What happens if your account is overdrawn
An overdrawn bank account should serve as a warning for you. These are the 4 steps you should take to mitigate the risk of escalating the situation:
- Stop using your account until you get back to positive
- If you can, freeze your recurring expenses such as Netflix
- Try to go back to positive ASAP. Banks will charge you extra fees if you are negative for too long. At some point, they can freeze your account and put you on a blacklist to prevent you from opening a checking account at any bank.
- Call your bank and try to find a solution that will be convenient for everyone