What To Do When Your Bank Account Goes Negative

Keeping track of your bank account balance is crucial, but we all know that life can sometimes get in the way. Unforeseen expenses or unexpected bills can throw us off balance. So, what should you do when you accidentally spend beyond what you have available in your checking account, resulting in a negative balance?

What happens if your bank account is in the negative?

Imagine accidentally spending more money than you have in your bank account, resulting in a negative balance. When this happens, you may incur bank fees. These fees can be applied for each debit card transaction that causes the negative balance.

Overdraft Fees

An overdraft occurs when you spend more money than you have in your checking account. Most banks will charge an overdraft fee for having a negative bank balance. The average cost usually falls between $25 and $35. Your bank may cover the cost of your overdraft item. In this case, you will need to pay the overdraft fee along with the amount of your negative balance. Let’s say you have $100 in your checking account and you spend $200. If the overdraft fee is $25, you will be required to pay the bank a total of $125.

Non-Sufficient Funds (NSF)

Don’t have enough money in your checking account to cover your expenses? When this happens, your bank will charge a non-sufficient funds (NSF) fee, also known as an insufficient funds fee. The cost of an NSF fee is typically lower than an overdraft fee. However, you will have to pay an NSF fee for each transaction made while your account remains in the negative. The main difference between overdraft and non-sufficient funds fees lies in overdraft protection. If your bank doesn’t cover the cost of a transaction that results in a negative balance, you will be responsible for paying an NSF fee.

Can a Negative Bank Account Result in Collections?

Having a negative bank account can lead to overdraft or NSF fees from your financial institution. However, if you’re unable to recover from a negative balance at the moment, there are important consequences to consider that may disrupt your life further.

Potential Bank Account Closure

If you maintain a negative bank balance, your bank may choose to close your checking or savings account involuntarily. There are several reasons why a bank might take this action, such as multiple overdrafts, bounced checks, or consistent negative balances. Additionally, excessive transfers can also result in the closure of your checking account.

Impact on Credit Bureau Report

While it may still be possible to open a bank account with bad credit, qualifying becomes more challenging if you’ve experienced an involuntary closure in the past. If your bank closed your account due to a negative balance, it might affect your ability to open a checking account in the future. In these cases, the bank may report your negative balance to ChexSystems, a bank reporting bureau that monitors accounts. A negative history with overdrafts or overdrawn accounts could lead to denials of your new checking or savings account applications.

Potential Decrease in Credit Score

Although banks cannot report directly to credit bureaus, a negative bank account can still impact your credit score. Payment history plays a crucial role in credit score calculation, accounting for 35% of your overall score. If a payment fails due to insufficient funds, it will be considered late, resulting in a decrease in your credit score. This may make it more challenging to qualify for housing or loans in the future.

Possible Collections and Legal Action

If you find yourself unable to pay off an overdrawn account, the bank may close your checking or savings account and collaborate with a debt collection agency. The agency will then attempt to recover the unpaid debt through communication such as phone calls and debt collection letters. Should you fail to settle the outstanding balance even after it is sent to collections, the bank may take legal action against you. Negative accounts are treated as unpaid debts, allowing the bank to pursue legal remedies to recover the outstanding balance. In court, banks and credit card companies have the authority to garnish wages, which involves the withholding of your income to cover the debt, including overdrawn accounts.

Steps to Resolve Negative Checking or Savings Accounts

If you find yourself with a negative account, there are several friendly and helpful steps you can take to improve your situation:

• Sell Items: In need of quick cash? Consider organizing a yard sale or using online platforms like eBay to sell your personal belongings.
• Get a Second Job: Taking on a side hustle can be an excellent way to earn additional money and address any outstanding debts.
• Apply for a Loan: If you require immediate funds, you can explore online payday loans, which offer a fast turnaround time, usually within one business day.
• Exchange Your Coins: Have a jar filled with saved coins? You can exchange them for cash at a bank or through a coin-counting machine.

Remember, by following these steps, you can regain control of your account and move towards a more positive financial state.

Preventing a Negative Balance and Overdraft Fees

Having a negative balance in your bank account can lead to various negative consequences. However, there are ways you can avoid this situation and the associated overdraft fees. Here are some helpful tips:

Choose a Checking Account Without Overdraft Fees

Instead of opting for a bank account that charges fees for overdrafts, consider selecting an account that does not have any overdraft fees. By doing so, accidental purchases exceeding your available balance will not result in fines for overdrawing your checking or savings account. This type of account can save you money on additional fees.

Stay Informed with Alerts

Regularly checking your bank account is a good practice to ensure you have enough funds to cover expenses and bills. Alternatively, you can sign up for low-balance alerts provided by many banks through mobile or email notifications. These alerts will notify you when your account balance dips below a certain amount that you can set according to your preference.

Take Advantage of Overdraft Protection

Many banks offer an overdraft protection program that allows customers to link two accounts to prevent overdrafts. By linking your checking and savings account, if you spend more money than you have in your primary account, the necessary funds will be transferred from your linked savings account to maintain a positive balance.

Disable Automatic Payments

Disabling automatic payments can help ensure you have enough money in your account to cover your bills. By paying your bills manually online, you can avoid overdraft fees and prevent a negative balance.

Inquire About Fee Waivers

If you have managed your bank account responsibly, you may have the opportunity to have your first overdraft fee waived. Approach a bank teller and mention your positive account history. Although there is no guarantee, it’s always worth asking, especially if you have been a loyal customer.

References: Can an Overdrawn Bank Account Be Sent to Collections? Is Your Bank Account in the Red? Here’s What to Do Now What could happen if you have a negative balance?