How to Break Out of the Dreaded Overdraft Cycle

One of the most difficult financial challenges to overcome is the overdraft cycle.  People fall into this cycle when they’re barely earning enough to pay all of their bills and expenses and have very little savings and no other emergency tools.

In this article

    What’s the overdraft cycle?

    The overdraft cycle usually starts with some minor emergency that you need to pay for out of pocket. Unfortunately, that payment causes you to overdraft your checking account. Depending on your bank’s policy, any number of things can happen at that point, but they almost all result in some additional fee.

    Then, you have no money to cover the overdraft fee or the overdraft itself, and your bank may tack on another overdraft fee for every day that your account is in the negative. If you have $100 in overdraft fees, and your account was already $50 in the negative, that’s $150 coming out of your next paycheck just to get your account back in the positive. 

    Then, you have less money to cover bills, rent, groceries and more, making your account susceptible to another overdraft — and another fee, thus restarting the overdraft cycle. 

    How can you get out of the dreaded overdraft cycle and back on track to avoid it?

    6 ways to break out of and avoid the overdraft cycle

    1. Give yourself a money-free 30-day challenge

    For 30 days, you simply minimize every single expense that you can. If it’s an optional expense, you skip it. If it’s a required expense, you cut it to the bare minimum by doing things like buying store brand household supplies and making meals at home. Set a 30-day deadline for yourself so that there’s a clear light at the end of the tunnel.

    This will build up a savings buffer in your checking account and don’t overdraft again. At the end of the month, figure out which expenses you didn’t miss — like the late-night fast food delivery or the midday Starbucks run — and keep them out of your spending habits to prevent future overdrafts.

    2. Make some money quickly

    Put some extra time into earning a little extra money. There are many ways to do this. You can drive for Uber, deliver for DoorDash, sell your unwanted clothes and items on Facebook Marketplace or even find odd jobs on Fiverr. 

    If you’re dealing with escaping a cycle of overdrafts, simply use the money raised to put a buffer in your checking account or build an emergency fund in a savings account.

    3. Create a simple budget that works

    Many personal finance books present budgets as being complex tables of number-filled rows, and that can feel overwhelming, particularly at first. There’s a much simpler approach to budgeting to start with if you’re uncomfortable with a table-heavy system.

    All you need to do is get out your credit card and bank statements for the last few months, go through them, and identify what your worst spending habits are. Where did you spend money that wasn’t strictly necessary? Identify some of those worst offenders, and then simply put a reasonable cap on those areas. Figure out how much you spent on each of those things in a normal month, then aim to spend, say, 25% less in the coming month on those things.

    Let’s say you spent $400 eating takeout food last month. Just aim to spend $300 on it. Let’s say you spent $200 on your favorite hobby. Just aim to spend $150 on it in the coming month.

    Within whatever specific areas you chose, keep careful track of your spending. Devote a couple of pages in a notebook to calculating your spending in that area. Start with the total you’ve budgeted at the top of the page, then each time you spend something that qualifies, write it down and subtract it from your total. When you get to zero, you’re done for the month. Regulate your spending during the month so that you’re not stuck on the 29th with a huge temptation and no money left over — in other words, learn to skip the lower impact expenses so you can afford the higher-impact ones.

    4. Talk to your bank or credit union

    If you find that you’re overdrafting consistently, take a few moments to talk to your bank or credit union. 

    For starters, if this is a new or irregular thing, you can simply ask for the overdraft fee to be waived. If you have been a consistently good customer in the past, it may simply waive the fee.

    If that’s not the case, you can discuss options for what you can do to minimize overdrafts going forward. Many banks and credit unions offer a number of tools for helping people overcome a cycle of overdrafts.

    5. Sign up for phone alerts and notifications

    One of the best tools that many banks and credit unions offer to help with overdrafting is account balance alerts. You can set these up so that you receive an email, text or phone call whenever your checking account balance falls below a certain level.

    For example, you might have your bank send you a text when your checking account balance falls below $500. When that occurs, you know it’s time to really cut back on your unnecessary spending and to keep an eye on any automatic transfers or bill payments.

    Simply becoming aware of a balance as it gets low can make it much easier to take steps to avoid overdrafting.

    6. Connect your checking account to a savings account or credit card

    Another tool that many banks and credit unions offer is the ability to link a checking account to a savings account or credit card for emergency funding should you ever overdraft. This sometimes incurs a small fee, but it’s usually much smaller than a full overdraft fee.

    This should not be used as a fix for being in an overdraft cycle — it’s more of a Band-Aid than a cure. Your goal should be to avoid overdrafts entirely. Rather, this reduces the financial impact of overdrafting so that if you do make a misstep in the future, it’s not quite as bad as it once was.

    We welcome your feedback on this article. Contact us at with comments or questions.

    Trent Hamm

    Founder & Columnist

    Trent Hamm founded The Simple Dollar in 2006 and still writes a daily column on personal finance. He’s the author of three books published by Simon & Schuster and Financial Times Press, has contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and his financial advice has been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.

    Reviewed by

    • Courtney Mihocik
      Courtney Mihocik
      Loans Editor

      Courtney Mihocik is an editor at The Simple Dollar who specializes in personal loans, student loans, auto loans, and debt consolidation loans. She is a former writer and contributing editor to,, and elsewhere.