Banking

What happens if you Overdraft your Bank Account and Don’t Pay it Back

Many people are continually in debt, unable to break free from a difficult-to-break cycle of borrowing. Overdrafts are supposed to be used only when necessary to solve a short-term crisis, yet millions of people rely on them to fund basic living expenses. The question is what happens if you overdraft your bank account and don’t pay it back?

Simply said, since the bank will close your account and report it to consumer reporting agencies, you should take steps immediately if ever find yourself with a negative balance.

If I had any money left in my checking account at all then I would have put an extra $50 on top of what was already there so that when they closed the account down this morning for not having enough funds to cover anything more than one single transaction (a withdrawal), no further charges could be made against me or my credit score record.

If you’ve done this to your bank account, there are actions you may do to correct the issue and avoid it occurring again. You’ll need to move immediately because if you don’t, you’ll likely end up with additional overdrafts, rejected checks, and fines.

Even if you check your bank balances online regularly, it’s easy to overdraw your account inadvertently. You may have, for example, issued a check to a corporation or someone who did not deposit it right away.

One thing is;

Your balance was higher than it should have been because a debit card transaction did not clear fast. Another possibility is that Direct deposits were missed, leaving you with insufficient cash to cover your withdrawals.

The implications of having non-sufficient or inadequate funds (NSF) or overdrawing your checking account, regardless of the reason, will be determined by your bank’s policies if you have a linked savings account and if you have chosen overdraft protection.

Understanding Overdraft Protection and Fees

What happens if you Overdraft your Bank Account and Don’t Pay it Back

Overdraft coverage is offered by some banks, which allows customers to overspend their account balances for a fee. Overdraft protection allows you to complete transactions even if you don’t have enough cash in the bank to cover the cost.

An overdraft happens when the value of a bank account goes beneath zero due to expenditures. If you don’t have overdraft protection, checks can bounce, automated payments (ACH transfers) may fail to clear, and debit card payments may be denied. When this occurs, many banks charge a non-sufficient resources (NSF) fee. These botched purchases have extra negative consequences, such as:

  • Interchange fees
  • Missed payments penalties
  • Accounts are deactivated.
  • Termination of protection (for insurance)

Individuals may find it embarrassing to have their debit card purchase denied or to have a check or ACH payment bounce. Still, more significantly, it might result in additional financial ramifications. If you’re willing to pay the costs, overdraft protection can help you prevent these problems.

Special Considerations to Avoid Overdraft Fees

Special Considerations to Avoid Overdraft Fees

An overdraft fee is a cost charged by your bank when you spend more money than you have in your accounts. For example, if you have $25 in your checking account and go to the grocery shop to buy $30 worth of groceries using your debit card, the bank will decide whether or not to accept the transaction. So:

The bank may refuse the transaction, in which case you will be unable to make a purchase. The bank may approve the transaction, lower your balance to -$5 (in this case), and impose an overdraft fee.

If an overdraft fee is imposed on your account, you must pay it unless you can have it waived. If you don’t, you’ll be charged extra negative balance fees, and the bank may close your account and ask creditors for repayment, which will negatively impact your credit score.

With a Bank of America Advantage Savings account, the more you save, the more you could earn

The current annual percentage yield (APY) for Bank of America Advantage Savings is 0.01 percent, which is the same as most traditional savings accounts. Tier one: A three-month average combined balance of $20,000 to $50,000 is required; a 5% savings interest rate increase is available, and a 25% credit card rewards incentive is available.

The fact that deposited monies earn interest over time is one of the main benefits of a savings account. Money held in a non-interest-bearing bank account or a home safe is losing out on prospective earnings.

Talk with a Bank Representative

What happens if you Overdraft your Bank Account and Don’t Pay it Back

If you call a bank’s helpline, they could be willing to forgive the first overspend or returned check fee, especially if it’s the first fee for a different account or any institution in a full calendar period. This may help you decrease the quantity you owe. However, keep in mind that institutions are not obligated to refund any fees and that requesting politely and softly typically yields better results.

If you owe too much or don’t think you’ll be able to fix your overdrawn account, talk to your bank about setting up a plan that will allow you to resolve the issue without being reported to ChexSystems. The easiest method to deal with your bank is to communicate with them directly and politely.

Take Steps to Avoid Future Overdrafts

Take care with your spending.

Before creating any new transactions, maintain a daily ledger and double-check it. Checking your accounts every day and seeing what has been processed and what hasn’t is quite straightforward, particularly now that online banking is accessible. It’s also easier to spot bank errors or expenses you may have overlooked if you stay abreast of almost everything personally.

Remember that not all of your checks or debit card transactions have cleared yet, so you can’t just glance at your balance at the ATM or online and assume it’s right. This is why it’s crucial to maintain track of your bank account’s balance.

Sign up for Low Balance Notifications.

Most banks provide low-balance notifications, which notify you when your account falls below a specific threshold. You shouldn’t need this if you’re keeping track of your expenditures, but it’s an excellent backup.

Don’t take out an overdraft.

With a few exclusions, institutions only allow you to overspend your account if you join up for their overstock program. You may check out at any time, but once you’ve overdrawn your accounts is a good moment to do so. Transfers will be refused if you do not have the required funds.

Connect Your Checking Account to another Account or Credit Line

To avoid overdrafts, many banks enable you to link additional bank cards to your bank account. Funds are moved out of another bank account or debited to your credit card when your account reaches a zero balance. Some banks offer customers a credit line to assist them to avoid paying overdraft charges. You may have to repay transaction fees or interests, but it will be less costly than overdraft fees individually.

Sign up for Low Balance Alerts

Many banks have a function that sends you an alert when your account balance falls below a certain threshold. You may establish an alert to get an e-mail or text message from our bank if your balance falls below $50, $100, or whatever minimum level you specify.

You’ll know precisely how much money you have in your account when you get an alert, which might help you budget for the future. For instance, an overdraft fee might occur simply because you lose track of how much money you have on hand. Alerts will also tell you if your credit card information is stolen and used to make transactions.

Read More: What Can Someone Do With a Stolen Check

Overdraft Debt: What to do if you’re Constantly Overdrawn

Overdraft Debt: What to do if you're Constantly Overdrawn

Make a financial plan.

Making a list of your income and expenses might have a significant impact on your financial situation. You can’t be in charge of your finances until you know how much money you have coming in and where it’s going (we’ve got some fantastic advice on how to get started with budgeting).

You’ll know what you need for bills, living expenses, and loan repayments once you’ve created a budget. This should inform you if you have enough money to pay down your overdraft each month. It can assist you in budgeting so that you are less likely to go into debt.

Keep your overdraft separate from your regular banking.

Trying to pay off an overdraft while continuously using it every month is analogous to trying to bail out a ship still taking on water. When you’re not using your overdraft to fund your living expenses, it’s considerably easier to return it.

When you speak with your bank about your overdraft, they may propose separating your overdraft debt from your regular banking by assisting you in opening a new account. This will allow you to escape the pattern of constantly swinging in and out of your overdraft. It’s easy to maintain track of your expenses and treat your overdraft like any other loan.

Talk to your bank

Keep your overdraft separate from your regular banking. Trying to pay off an overdraft while continuously using it monthly is analogous to trying to bail out a ship still taking on water. When you’re not using your overdraft to fund your living expenses, it’s considerably easier to return it.

When you speak with your bank about your overdraft, they may propose separating your overdraft debt from your regular banking by assisting you in opening a new account. This will allow you to escape the pattern of constantly swinging in and out of your overdraft. It’s easy to maintain track of your expenses and treat your overdraft like any other loan.

Separate your overdraft from your day-to-day banking

If your bank cannot separate your overdraft debt from your primary account, it may be worthwhile to create a new bank account with no overdraft with a bank with which you have no obligations.

This new account may be used to deposit your earnings and manage your daily finances. Your former bank account will stay overdrawn, but you will be able to address it as average debt, and it will be separated from the rest of your money.

Start chipping away at your overdraft balance.

This is the most challenging part. In the real world, making a plan is far easier than sticking to it. This will entail sticking to your budget and paying your bills on time each month. It’ll probably be not easy at first, but as you see your balance improve, you’ll be more driven.

Unexpected events may make it challenging to stay within your budget, but a smart budget can help you plan for most of them. That is why, while creating a budget, it is critical to strive to account for all possibilities.

Frequently Asked Questions

What if your checking account is in the red and you don’t pay it off?

If you do not even settle off the negative number, the bank will close your account and submit you to a credit agency for having an account with a negative balance. If you owe money to a bank, the bank will demand it back.

What if your checking account is in the red and you don’t pay it off?

If you wouldn’t pay off the negative value, the bank will close your account and expose you to a credit agency for having an account with a negative return. You owe money to the bank, and the bank will demand its funds refunded.

What happens if my bank account is negative for too long?

Overfilling often (or keeping your balance negative for a lengthy period of time) might have serious consequences. Your institution may close your account and refer you to a credit agency, making it harder for you to get a new account. (And the institution’s deficit will still be your responsibility.)

Do you have to pay back an overdraft?

An overdraft may be a costly loan, so if you are in a position to begin repaying it, do so as soon as feasible. An overdraft, unlike loans or credit cards, does not have a repayment schedule. Thus it is up to you to pay it off.

Can you go to jail for an overdrawn bank account?

Overdrawing your accounts is an uncommon occurrence. As per the National Check Fraud Center, many states have the power to sentence someone to prison for overcharging their accounts. Nonetheless, the reasons for doing so have to be strong enough to justify federal indictment.

What happens after 7 years of not paying debt?

Even while loans remain on your credit record after seven years, getting them removed can help your credit score. Only negative information on your credit record is removed after seven years. Positive accounts that have been open for a long time will remain on your credit record eternally.

How long can your bank account be overdrawn?

The repercussions of having NSF or overdrawing your checking account items will vary depending on your bank’s policy, whether or not you have a linked savings account, and whether or not you have chosen overdraft protection.

The length of time it takes for banks to close negative accounts varies depending on the size of the overspend and the user’s banking record. And that is when your devotion to your institution comes into play. Many individuals wait around 30 and 60 working days, while some wait as long as four months.

What happens when you owe bank money?

Money owed to your bank is a non-priority debt, which means you won’t lose your house if you don’t pay your bills, but you will be brought to court and required to pay what you owe – typically with additional fees. If you owe money to your bank and are unable to pay, contact your bank immediately.

Is it possible to withdraw money with inadequate funds?

Suppose you’ve used an ATM while your credit limit was still available. In that case, the bank may choose controversial action, such as putting the account in the negative and activating an overdraft fee.

If you haven’t used an ATM yet, be sure to keep track of your withdrawals and, when possible, use cash or debit cards. Using less electronic banking means fewer transactions on the system and less need for credits and fees.

What happens when a bank closes an overdrawn account?

You won’t be able to make checks on your bank account if it’s closed due to overdrawn or any other reason. So, you will face legal consequences if you do so. You might be sued in small claims court by a merchant for the amount you owe.

What happens if you go into your overdraft?

It will appear as a negative figure on your bank statement or online banking when you fall into your overdraft. When this happens, the bank will usually charge you fees, so try to prevent it as much as possible.

Can I close my account with a negative balance?

Banks usually do not close accounts that have a negative balance. According to the Office of the Comptroller of the Currency, so even if you request the account be closed. At the same time, it is in an adverse condition, and the bank is unlikely to comply. You owe money to the bank if you have a negative balance.

Bottom Line

When you’re already down, overdraft fees may be a pain, but preventing them is simple. Because not all banks provide all of these alternatives, think about using your credit card.

Overdraft protection on your bank account is a useful feature, but it isn’t inexpensive. According to the Consumer Financial Protection Bureau, the typical overdraft fee charged by retail banks is $34. (CFPB).

While the possibility of paying a penalty charge for overdrawing your account is frightening. There are several methods to prevent it, one of which is to use your credit card.

When you’re already down, overdraft fees may be a pain, but preventing them is simple. However, because not all banks provide all of these alternatives, you may be restricted to your bank offers.

If that’s the case, try transferring banks to a bank where you have a credit card or transferring banks to one that provides one of the other options we listed. Getting rid of overdraft fees once and for all would save you money and give you more peace of mind.

An ‘unauthorized’ overdraft occurs when you go overdrawn without first getting permission from the bank. This might harm your credit score and make it more difficult for you to secure a loan in the future.