An overdraft occurs when there isn’t enough money in your account to cover a payment or withdrawal and your bank covers the difference. As a result, the account becomes overdrawn and has a negative balance.
Anyone who has ever noticed that “my bank account is overdrawn and I have no money” should take a moment to figure out how the overdraft happened. Understanding what happened will help you not to make that mistake again.
There are two ways that an account can be overdrawn. First, if you have a debit card or use a check, you can use more money than you have in your bank account. Some banks have overdraft protection and will refuse the purchase if you don’t have enough funds in your account. Without overdraft protection, you can expose yourself to overspending.
Second, if you have too many credit cards or bills that need to be charged to your account at once, you could be exceeding the limit. It’s even easier than overpaying with a debit card, as the debit card keeps track of how much money you have in real-time and it can take time to process bills that leave your bank account.
The overdraft is not reported to your loan. This still does not count as a late payment or outstanding loan. Think of it this way, until you’re overwhelmed, you’ve used your money. If you are overwhelmed, take out a loan. The bank covered your costs so I am now waiting for a refund.
If you don’t repay a loan, you can send that loan for collection like any other outstanding loan. When this loan is sent for collection, it will be credited to your account as it is considered bad debt.
Bank accounts submitted for collection are reported to ChexSystem. ChexSystem is like a credit reporting agency for bank accounts. Specifically, ChexSystems is a banking intelligence agency that collects information about bank accounts, including checking and savings accounts, with previous issues such as overdraft fees, returned checks, and unpaid negative balances.
Submitting a bank account to ChexSystem can make it difficult to find another bank account in the future. This is one more reason not to submit a debt collection account.
When your overdraft bank account is sent to collection, remember three things.
A collection agency buys your credits
A collection agency buys your credits for sale. Usually four cents on every dollar. In other words, if you owed the bank $1,000, they only spent $40 to buy it.
Negotiate Your Debt
If you call a collection agency, you don’t have to pay the full price. Instead, you can negotiate with them to pay off part of your loan or even pay off a payment plan. This saves you and them money to trade immediately, so you will be surprised how helpful they are.
The reason they are willing to negotiate is that the alternative is to sue you. That means you don’t want to waste time negotiating because they might win the case and be entitled to your salary via the wage garnishment, but you’re also more willing to negotiate because otherwise, they’d have to pay hefty legal fees and waste time getting money.
Remembering these three things after your credits have been accumulated will do a much better job of solving the problem than trying to ignore it.
Your first line of defense against overdraft fees is to know your inflows and outflows. If you monitor your spending regularly, you don’t have to worry about having enough money – you know exactly how much money you have.
Many banks offer overdraft protection, but you have to make a choice. Overdraft protection ranges from being able to go over a certain amount as long as you do it within a certain number of days, to allowing your bank to charge multiple accounts you have if one is overdue. Regardless of the security they have, they are worth knowing to protect your bank account.