Updated on 02.23.12

Opt Out of Courtesy Overdraft Protection (53/365)

Trent Hamm

A lot of banks offer what they call “courtesy overdraft protection.” On the surface it seems like a good program. After all, they do cover the bad check you wrote, right?

Actually, most “courtesy” overdraft protections can end up putting you in a worse situation than just dealing with a returned check.

Opt Out of "Courtesy" Overdraft Protection (53/365)

Most courtesy overdraft programs work in a very straightforward fashion. If you write a check that exceeds your account balance, they’ll cover that check for you, but it will cost you.

First of all, the bank will ding you with a fee of varying size. A common number that I’ve seen is $35 – most initial fees are somewhere in that range.

After that, you’re typically charged a daily fee until you come up with the cash to bring your account to a positive balance. This can range from $2 to $10 a day, depending on the bank. Let’s call it a $5 average.

So, let’s say you had a $50 check returned and you couldn’t cover it for five days until payday. You’d be hit with an initial fee of $35, plus $25 for the daily fees. You’re paying $60 in fees just to cover a $50 check!

Even worse, a few overdraft protection plans charge you a monthly fee on your account, ranging from $1 to $3.

My recommendation is usually to opt out of these plans, even if you’re not getting dinged with a monthly fee. Obviously, you’ll need to examine the exact fees charged by your bank, but almost always the consequences of “courtesy” overdraft protection are worse than a normal overdraft.

First of all, the financial pain of an actual overdraft has a strong likelihood of being less painful than the overdraft protection. The bank will often just return the check and charge you a small fee, leaving the resolution to the business you passed the false check to. That bank fee is usually smaller than the courtesy overdraft initial fee, but you’ll want to check to make sure.

Furthermore, if you’re not a serial overdrafter, you can usually resolve the consequences of the bad check with a phone call or a visit along with an apology. Simply contact the business you wrote the check to, apologize for your banking mistake, and pledge to make it right. If they have a returned check fee (some businesses do), ask for it to be waived. As always, if a business treats you well, reward it later with good word-of-mouth (as we want good businesses to thrive and customer-unfriendly businesses to die out).

I haven’t been close to an overdraft for a long time, thankfully. I’m very careful with my balances and leave a nice buffer in place. Even given that, I took the time to remove courtesy overdraft protection from my account. If I mess up, I’m quite sure that it will cost me far less to resolve the check on my own than letting the bank ding me hard for my mistake.

This post is part of a yearlong series called “365 Ways to Live Cheap (Revisited),” in which I’m revisiting the entries from my book “365 Ways to Live Cheap,” which is available at Amazon and at bookstores everywhere. Images courtesy of Brittany Lynne Photography, the proprietor of which is my “photography intern” for this project.

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  1. Johanna says:

    How on Earth does this article not mention the words “debit card” at all? (Except in the picture – good job, Brittany!)

  2. Izabelle says:

    I find that this article is short-sighted. There are other advantages to an overdraft plan, specifically if your pay comes via direct deposit and you have automated payments from the same account: if the payments are taken even just a few hours before your pay comes in, you could be in trouble!

    For example, I have an overdraft plan with my bank that costs me 4$/month. The interest is 21%/year but there are no nominal charges per use. The high interest does not bother me because my overdrafts usually last only an hour or two: the few times it happened, an automated mortgage payment had happened shortly before my pay came in. Had I not had overdraft protection, the payment would not have passed. And the second my pay came in, the overdraft (usually 20$ or so) was paid in full. So to me, it is a small price for peace of mind.

  3. Katie says:

    What I do is keep overdraft protection (which is free, costs a fee when used, but draws necessary funds from my credit card and thus doesn’t put your account into a negative balance or incur fees for that) on my primary checking account, which I have all my automatic withdrawals from. This is for the reason Izabelle mentions. I then transfer spending cash into a different checking account, which I don’t have overdraft protection on, since I don’t use it for automatic withdrawals and the only consequence of not having necessary funds there is that my debit card gets rejected.

    I write about two checks a year, so that’s not usually an issue.

  4. valleycat1 says:

    I thought that the benefit of having automatic overdraft protection in place is that the fees charged to cover an overdraft temporarily are less than the bounced check fees that usually run $35. Obviously I haven’t needed to pay for either lately!

  5. lurker carl says:

    The overdraft plan at my credit union automatically transfers the required amount of money from the attached savings account. The cost of this service is $5 per day of zero balance in checking and does not charge a monthly fee.

    If the savings account is too low to cover the overdraft, then it becomes a revolving credit loan with interest and a $15 fee per transaction. The fee per transaction is far less than the $50 or more that a bounced check costs.

    Our local bank has essentially the same policy for overdraft protection which requires $2k minimum savings balance for free overdraft protection.

    Most of my bills come due at the end of the month, an empty checking account would result in six or more checks bouncing. That’s at least $300 in overdraft fees, I’ll stick with the $5 plan from my credit union.

  6. elyn says:

    I disagree that it is better to bounce a check than to use overdraft. If you bounce a check, you get charged a fee from your bank AND whoever you bounced a check with, since that person gets charged by their bank for your bounced check (I charge my clients a $30 fee if they write me a bad check, for example). Also, it is just rude to bounce a check.

    I like having the overdraft plan my credit union offers- it will automatically overdraft from my savings or my credit card if there is no cash in the savings account. There is a one-time fee, or, if it comes out of the credit card, you get charged as if it were a cash advance. The one time I needed the overdraft, my bank willingly refunded me the fees when I asked them to.

  7. Evita says:

    I say “it depends”. Don’t assume that Trent’s numbers will apply to your bank account.

    My bank in Canada offers free overdraft protection (the fee of $5 a month is only when there is an overdraft, no fee othewise). For some accounts, the overdraft charge is $11M (once), and interest is charged per day until coverage.
    But a bounced cheque automatically costs me $35. The bank will NOT just return the cheque to the beneficiary with a small fee! in my life, all bounced cheques have been very expensive. I now take the protection, thank you.

  8. elyn says:

    …I should add that the reason that I charge a $30 fee for clients’ bounced checks is that this is what my bank charges me for depositing bad checks into my bank account. I would not waive that $30 fee if someone asked me to, because then I’d be out money for someone’s bad check. I don’t consider that good business, nor would I want a person spreading the word to other people that I pay for other people’s bad money management.

  9. Riki says:

    I also disagree with Trent’s idea that the bank will “often just return the check and charge you a small fee, leaving the resolution to the business you passed the false check to.”

    HA! Ridiculous. The last time I checked, the fee was like $45 from the bank in addition to whatever the other party might charge me. I have overdraft protection as part of my regular account fees (yes, I pay fees) so if I happen to bounce a cheque it only costs me the nominal interest until the account comes back up into the black.

    That said, the only cheque that I have ever bounced on me was 5 years ago when my landlord deposited my rent cheque 3 days early. The bank refunded the fee when I called them.

  10. Liz says:

    Or maybe, you could, like *not* write bad checks, and nkt have to worry about overdrafts fees. Just sayin’.

  11. Liz says:

    And maybe I could proofread before I hit submit, too. :/

  12. Katie says:

    Oh yes, I will add – the last time I got a bad check from someone, not only was I charged a fee for it, because I had cashed rather than deposited the check, my account went negative and Bank of America decided to just cancel said account. So if you’re really talking about checks rather than debt card transactions, and some of those are to individuals rather than companies (or to small companies), you could be causing them a lot of trouble if you don’t have overdraft protection.

  13. Mister E says:

    I’ve only ever had one bad cheque – my wife wrote the rent cheque one month and accidentally wrote it on the wrong account which didn’t have the funds.

    Happily, both the bank and the landlord waived their fees.

  14. Johanna says:

    When exactly did it become the norm that Trent’s readers know more about what Trent is talking about than Trent does?

  15. David says:

    Unclear, but I would tentatively suggest the day he bought the Prius.

  16. Riki says:

    Since he stopped doing research of any kind and just goes by what he thinks is right?

  17. valleycat1 says:

    Since he started using a several-years-old book as the basis for half of his posts without seeming to update based on the current financial environment?

  18. Kai says:

    I can’t believe it took until Liz at #10 to speak my mind ahead of me.

    I have this AWESOME overdraft protection at my bank, and it’s free! I can get it at any bank, too!
    It’s called the “I don’t write cheques I don’t have the money to pay” plan. Nor do I use a debit card without money in my account. Nor do I depend on same-day deposits to fund withdrawals.
    It’s the sort of plan that everyone can sign up for too!

    I don’t make a lot of money, and until recently, I worked shift work with variable scheduling, so I lived on a tight month-by-month plan. But the trick for me is that I lived that way with an extra month in between. So whatever money I made in January is my budget for March, and I can plan on exactly the amount of money I have to spend, because I know what it is. Meanwhile, as my pay for February is coming in, I don’t worry about it being on time or a slightly different amount, or anything, because I’m not spending it until April.
    It works really well, and means I never worry about things like writing a cheque and hoping I’ve been paid.

  19. Kai says:

    To be fair, the large readership here makes it seem likely to me that *someone* will know more about a topic than Trent does.
    But if he was attentive to the posts and the comments, he’d acknowledge his mistakes and learn for future postings, so the crowdsourcing worked to his credit rather than making him look way out of it by repeating incorrect information that has already been corrected for him.

  20. Misha says:

    Johanna: Since around the time he sold the blog and mentally checked out from it?

    No, it was probably long before that, wasn’t it.

    But remember, if you go to www dot trenthamm dot com (requires the WWW or you end up at a “not found” page on tumblr), all it says is “I’m a writer living in Iowa. I founded TheSimpleDollar.com and watched it grow up and leave home. Now seeking new challenges and adventures.”

    To be frank, “seeking new challenges and adventures” sounds a little too J.D. Roth for me, but whatever.

    (His Facebook profile info is similar: “I’m a writer living in Iowa. I founded TheSimpleDollar.com. When it became too big for me to manage, I sold it (but stayed on as a writer). Now, I’m working on lots of other projects.

    Some great gems over there from his personal Twitter as well.

  21. Katie says:

    Kai, some of us make mistakes. It’s not ideal, no, but I’ve found that I will make mistakes so I’m better off planning for them so that I can mitigate the damage when they occur. If that isn’t your situation, fine, but that doesn’t mean it’s dumb for other people to acknowledge that sometimes they screw up and to factor it into their plans.

  22. Johanna says:

    Nor is it dumb to acknowledge that not everybody is at the point where they can keep a whole extra month’s expenses just sitting in their checking account.

    In general, it’s easier to “live cheap” when you have enough money that you don’t have to.

  23. Julia says:

    The way Trent describes overdraft protection… he needs to do more research.

    My overdraft protection is a line of credit with 8.45% APY. It’s compounded daily, but my overdrafts are generally simple mistakes that can be fixed in a day or two.
    For $100 overdraft, that’s about 2 cents per day. And it has no fees aside from interest. I’m with a credit union.

    Without overdraft protection, my overdrafts were covered with an automatic transfer from my savings account at $5 per transfer. If I didn’t have enough in savings the bank covered it and called it a courtesy at $25 per transaction.

    Before I got my overdraft protection I made a big mistake. I forgot about the 2-day check hold policy and deposited my paycheck on a Thursday. On Saturday, I moved into a new apartment, paid the deposit and the first month’s rent. Throughout the weekend I made many trips to grocery stores, hardware stores, a gas station, even picked up dinner at a restaurant as I was getting settled into my new place.

    Come Monday, the first transaction to clear was the rent & deposit – which wiped out my savings account and incurred $25 overdraft fee for the difference. The other transactions followed at $25 each. My paycheck was the last transaction processed. That mistake cost me more than $200 in overdraft fees over the course of one weekend. Since then, my overdraft line of credit has cost me less than $10 (in about 3 years).

  24. Ryan says:

    I always thought overdraft protection was a scam because of the ways banks used to purposely order transactions in a way that ensured the most overdraft fees.

    Now that they can’t do that and you’re actually allowed to opt out, I’m not so against it. Having your debit card declined or bouncing a check is really embarrassing. For most of us, we’d just shrug it off and try to get away from the situation, but it could cost a businessman a deal.

  25. Kai says:

    That whole month’s income/expenses usually averaged ~$700-800.
    I got on that plan deliberately because I knew I didn’t want to run into issues where I was worrying about what came in when. The people I knew who were usually frantic about pay coming in at a particular hour were spending a lot of it on clothing and alcohol.
    Sure, a few people are in genuinely dire straits through no fault of their own. but for the majority of the population, two months of cutting extremely lean would build up enough cushion to not worry about overdrawing your bank account.
    This to me comes in with frugality types accepting a car payment as a standard expense. People have come to see a norm that is so problematic that pretty basic things are seen as impossible.

  26. Sara says:

    I admit I don’t know much about overdraft protection, but I thought the point of it was that you *don’t* pay fees for bouncing a check — instead, the overdraft automatically gets charged to a revolving line of credit (which, of course, charges interest, but as long as you pay it off quickly, is much less than overdraft fees).

    In any event, I opted out of overdraft protection because I keep a very large cushion in my checking account, and the only way I can imagine overdrawing my checking account would be if someone wrote a fraudulent check or stole a lot of money from my account. If that were to happen, I wouldn’t want the bad check to be honored, and I would want to find out about it ASAP rather than go into debt until I realized what happened.

  27. deRuiter says:

    My overdraft protection is free of fees, except if it kicks in and then there’s a modest interest, which is pennies a day, and if you pay it off quickly it is certainly worth the few cents to keep a check from bouncing.
    “When exactly did it become the norm that Trent’s readers know more about what Trent is talking about than Trent does?” When he began to fancy himself a “passionate” writer of more important things like novels and began writing this column off the top of his head, inventing phony “incidents” which are the starting point for columns full of “Board games are more intellectual than TV.” and “Anyone with a Lexus and nice clothing is inferior to me and drowning in debt.” Also when he discovered that he could get 365 dated columns with no effort by rehashing the book things went further downhill, ditto 10 inspirational things which is merely listing ten things others have accomplished and claiming he “wrote” another column. There are some really informed people who read this column, and they give excellent advice which is accurate in the comments section. I guess they are not “passionate” writers.

  28. Tom says:

    I’m with Kai on this one. I overdrafted my account with my debit card once, paid $25 for it, and decided never again. I keep a buffer in my checking account and that’s my overdraft protection. To Johanna’s point, this takes getting your house in order first. But isn’t the primary tenet of any personal finance advice is spend less than you earn? If you can do that, you can get to a 1 month buffer. To me the peace of mind is worth any opportunity cost.

    This post, I’m not sure where Trent was coming from exactly, but I remember when laws changed for banks with regards to overdraft policies, and I remember thinking it was a scam to opt-in to the program. I also remember my bank trying to spin it as a new positive program they had, as if they weren’t forced to change due to the new government restrictions. So I think he was on the right path here, but it misses a little bit. Source material for the fees would’ve been helpful.

  29. Mister E says:

    Since he doubled up on the reader questions and started fancying himself as an all purpose life expert rather than just a guy sharing the benefit of personal financial turnaround.

  30. Tom says:

    Upon further research, I found out that overdraft protection, at least at my bank, only applies to debit card and ATM transactions. So regardless of whether I opt in or out of overdraft protection, my bank will treat a bounced check exactly the same.

  31. Johanna says:

    Kai, I think you might have a skewed sense of what finances are like for “the majority of the population.”

    There was a survey that came out last summer that found that only 36% of Americans have enough money on hand to cover a $1000 unplanned expense. (And of that 36%, some of them might have a reason for not wanting to keep the entire $1000 in their checking account.)

    For the other 64%, regardless of whether their situation is their own fault or not, they’re not going to get out of it overnight. There’s a reason why saving $1000 is a major milestone in the Dave Ramsey plan – it can take a long time. And every overdraft fee you get hit with in the meantime makes it take even longer.

  32. Rachel says:

    I’m with Kai and Tom. Bouncing checks is irresponsible. A person should be able to keep track of what is in their checking account. An unexpected emergency expense could be covered with a credit card; though not ideal, it’s better than bouncing a check.

  33. Melody Bakeeff says:

    I’m glad I’m not the only one who read the column and went – what?! Where the heck does Trent bank?! LOL Overdraft protection comes out of my savings account with a transfer fee, like others. I didn’t opt-out either. And yes, nowdays you may see a negative ‘available’ balance during the day, but if you deposit money then after the run (usually midnight-ish) your deposit goes in, followed by your debits and the next day you have a positive available balance again.

    If you have a “major” bank at least, they charge annoying fees and don’t give some services for free they used to (like Money Orders) BUT the amount of alert options and other apps available negates the whole “I had no idea” concept. Someone in the family is looking at our (business & personal) accounts EVERY DAY. We’ve had bad luck with getting bogus charges from overseas, but we (and Chase, I’ll give their fraud department the props they deserve!) see it, look to make sure it’s not some funky name for a place we actually bought items, and then deal with it. In the past yes, I went the “stick my head in the sand and it will go away” route.

    Short story – it didn’t. So now I’ve determined ignorance is most definitely not bliss in this case! I think one of the major issues behind the “don’t bounce checks and you’ll be fine” mantra is that many folks have yet to ‘wake up’ as we did. They still stick their heads in the sand, don’t avail themselves of the many free tools available to keep track of their account(s) and do they math in their head thinking they are fine.

  34. Kai says:

    I don’t have a skewed idea of the average person’s bank account. I have what appears to be a pretty accurate idea – that it is completely messed up, when people are spending each paycheque as it arrives, and paying fees everywhere for failing to pay attention.
    I simply don’t excuse it.
    Just because a majority of people are really really bad at something doesn’t make it okay. Just because society has decided that being completely irresponsible with money is a reasonable standard doesn’t make it at all reasonable or good.

    I recognise that a few people are in really rough situations they couldn’t control. But the majority of people are simply not doing everything they could to fix their situation.
    How many people who can’t build up a $1000 emergency fund drink alcohol? how many of them smoke? how many of them do an occasional dinner out? how many of them use makeup, and spend a lot of money on haircuts? drive a car regularly?

    It’s a matter of values. I decided very early on that not spending money I didn’t have was extremely important to me, and while lots of people I knew bought cars and found their own apartment and had a weekly pub night or two, I did what I needed to do to live on my income. And I never overdrafted or wrote a cheque I couldn’t pay, and I never worried spent my money the day it came in.

    The fact that most people don’t isn’t to say that most people couldn’t.

  35. Johanna says:

    Do you know what another helpful tactic might be in building up a $1000 emergency fund? Understanding the enormous fees you’re getting hit with, and understanding your options for avoiding those fees – for example, opting out of courtesy overdraft protection. That’s the purpose of these articles, and it’s an admirable one (although, as many have already pointed out, the execution is beyond shoddy.)

    Oh, but I forgot: If we give people information about how to avoid getting screwed over by their banks, they might be able to turn their financial lives around while continuing to drink alcohol, use makeup, and do other things that Kai finds unacceptable. We can’t have that, can we?

  36. Izabelle says:

    Wow, I’ve been accused of being judgemental before, but Kai outdoes me here!!!

    I would not argue that it’s better not to live paycheck-to-paycheck. But when you’re riding a bad wave (ex.: a prolongued sickness removing one income for, say, a year or two), sometimes things don’t work like on paper, no matter how large your emergency fund was to begin with. No need to be a smoker or a heavy drinker to have to temporarily live a bit closer to the edge. We can’t plan for everything.

    Kai, I really wish that you don’t have ever have to find this out the way I did.

  37. Julia says:

    You have a pretty skewed idea if you think overspending is the only way to be overdrawn.

    I have at least 6 accounts at two different banks. My paychecks get deposited into a savings account that I can’t easily access. At the beginning of the month, I move the money I intend to spend into my checking account at the other bank – this takes 2 business days. By only keeping the amount I intend to spend in checking, I make it much harder to overspend. All “extra” expenditures require 2 day notice.

    The downside to this is the greater risk of making a mistake and being overdrawn. That risk is easy to manage with overdraft protection credit.

    The buffer I keep in my checking is small – $50. My overdraft protection is enough to cover my rent +$200. That’s not from spending my money before paying my rent. It’s because I sometimes forget to move my money over 2 days before rent is due.

    I’m not “completely irresponsible with money”. I don’t spend “each paycheck as it arrives”. My money is about the only thing I DO have under control.

    I am often deeply depressed, I’m chronically late, I work irregular hours, and frequently put off my “housekeeping” tasks for a few days after I decide they need to be done because I’m always tired – sometimes too tired to think.

    Also, I would never keep my emergency fund in my checking account because overspending is not an emergency. Like I said, it’s not even at the same bank.

    My system may seem convoluted to you, but it works well for me. A good overdraft protection program absorbs the risk.

  38. Izabelle says:

    A lot of people, like Kai, think that they can control everything, and therefore other people should, too. No one can. You can only prepare and hope/be confident that you prepared enough and be ready to live through whatever comes at you.

    People often forget that living paycheck-to-paycheck can be a very temporary solution. Sometimes it’s the best one, because the changes required to make it otherwise (i.e. selling house or important assets) would be more permanent and have a greater negative impact than just getting by for the time necessary.

    My “extravagant luxury” is putting my husband through full-time school after it became physically impossible for him to stay in his current field. Now that’s worth living paycheck-to-paycheck for!

  39. Kai says:

    If you struggle to remember when to pay things or move your money, it would seem that rather than paying for overdrafts, you’d do best to find a simple system where you’re a lot less likely to make a mistake.
    But then, I’ve also never needed a system to prevent me from spending too much money – I just don’t do it.

    Yes, I am highly judgemental of people who spend money they don’t have, and even more of people who think it’s normal to do so, or that they should receive sympathy for their poor spending habits. I’m very judgemental of people who are in consumer debt and continue to spend on anything other than the bare basics.
    Call me a relic, but I don’t go for this new idea that we have to approve of everything anyone does. When someone is doing something dumb and irrational, I call it out. Society *shouldn’t* accept people’s complete failure to do basic things like control their spending as a reasonable lifestyle.

    I don’t consider any sort of luxuries unacceptable – if you have the money to spend on it. But if you can’t afford your life, you need to cut back on all kinds of things until you can.
    As I stated before, I am in favour of opting out of overdraft protection and other such fees. I was opposing the people who had piped up with ‘overdraft protection is great since it saves you when you overdraw your account’ by saying that skipping it and just not over-spending is the way to fix it.

    To Izabelle: It’s not all or nothing. As I stated above, some people really do wind up in an awful financial situation through uncontrollable factors. But that’s a very small segment of the financially-wrecked population, and I speak to the rest. The couple of genuine exceptions shouldn’t assume they are under attack.

  40. Kai says:

    I would have worked a little longer to build up some cushion so that when I/my husband went back to school, we could do the one month back get-by living rather than spending each paycheque as it arrives. But then, I also worked before I went to school to build up some backup money, and when I was in full-time school, I usually worked about 20 hours a week, which was at least enough to pay for my monthly expenses.

    The fact that you can’t control everything is no excuse not to control the things you can.
    If something suddenly knocked me into a bad situation (which is always a possibility), I’d drop everything I didn’t desperately need until I had built back my one month of backup, and then go back to my usual pattern of spending money on extra things when I have the money to do so.

  41. Johanna says:

    “Call me a relic, but I don’t go for this new idea that we have to approve of everything anyone does.”

    Um…okay. But how is that relevant?

  42. Johanna says:

    I guess I could say: I don’t go for this idea that everything anyone does is a matter for my approval or disapproval.

  43. Kai says:

    The idea that because a lot of people do it, I should be understanding of it and shouldn’t come right out and say that it is bad, or wrong, or dumb, or anything else disapproving.

    I don’t claim to be some kind of financial overlord. It is obviously up to any individual to disregard anything I say as an irrelevant source.
    but when we’re discussing ways to deal with banking overdrafts or whatever, pointing out that the obvious solution is to not do dumb things with your money is perfectly relevant.

  44. Izabelle says:

    Kai: “I would have worked a little longer to build up some cushion so that when I/my husband went back to school, we could do the one month back get-by living rather than spending each paycheque as it arrives.”

    The cushion was really useful during the first year of illness. Then he tried to go back to work and it was obvious that unless he wanted to get sicker fast, this was not a viable option. As I said, sometimes when looking at the big picture, situations that look bad when isolated actually make sense as part of a bigger plan.

    Before finding this out the hard way, I was a “but-you-should-build-up-a-bigger-fund-first-just-like-I-do” judgemental snot like you.

  45. Kai says:

    What kind of illness is there that allows a person to attend full-time school, but makes it impossible to work a job? I’m baffled here.

    If you prefer to get on the education and live paycheque-to-paycheque for a few years, have at it. I’m simply pointing out that it’s a choice and not a necessity. Sure, you were no doubt stuck there for a bit, as anyone might be, but while I could handle that sort of living for a brief period of necessity, I can’t imagine doing it for four years, or however long the education takes. I would thus choose to wait until we had the money.
    But hey, as long as you’re actually spending only what you make each paycheque, I think it’s an unnecessarily difficult and tenuous way to live, but at least you’re taking care of yourself. My scorn is reserved for those who choose that sort of living and then don’t pay close attention as is necessary and thus spend money they don’t have.

  46. Katie says:

    I guess what I don’t understand, Kai, is the relevance your scorn has to this discussion. We’ve established that there are people who – for whatever reason – may overdraft from time to time (actually, that is everyone since an error large enough could hit anyone), and that there are mechanisms to mitigate the damage that will cause. Some of those are related to structuring accounts so that one’s emergency fund provides a buffer in a checking account; others are related to meticulous tracking; others are related to minimizing the penalties for an overdraft. You are scornful of people who utilize the third option, but your scorn actually seems like the stupidest possible reason to take something that could be helpful to someone off the table. Would you really respect someone who said “Oh, this random person on the Internet thinks the way I structure my finances is stupid; I guess I will set up my accounts so that I voluntarily incur fees that are larger than I have to”? That is better to you?

  47. Izabelle says:

    @ Kai “What kind of illness is there that allows a person to attend full-time school, but makes it impossible to work a job? I’m baffled here.”

    Baffled? Really???

    Plenty of jobs require a physical effort: Nursing, Carpentry, Cabinet making, Waitressing, to name a few.

    Meanwhile, a host of office jobs can be done (and studied for) while sitting down. Much more suitable for a person with reduced mobility, arthritis, a missing limb, or one of many other debilitating conditions that I would not wish on anyone. Going to school earlier in that case means taking a meaningful step to maximize lifetime income.

  48. Izabelle says:

    In case the above is not clear, Kai, after running the numbers it can be inefficient for a person with a handicap or a chronic condition to work at a job way below their skill set (and most likely minimum wage) to try and slowly build up funds to be more comfortable to go back to school. Besides, unskilled jobs are often physical too, so it<s slim pickings to begin with (ask how I know…)

    It can be much smarter to bite the bullet now. Tax returns for the supporting spouse help soften the blow at the end of the fiscal year, so part of the paycheck-to-paycheck living (or debt) is, in a way, artificial. But more importantly, this plan allows the disabled partner to get back to more decent earnings sooner. In the big picture of things (lifetime earnings), it's a clear win.

  49. Kai says:

    I meant impossible to work *a* job. I certainly recognise that there are some jobs that require physical skills one might have.

    It’s the same question as student loans – getting on things earlier in a more awkward financial situation with the assumption that it will pay off in the long run. Often it does, but for a while, it leaves a person very open to small things becoming a big deal. Different people have different comfort levels there.
    My only point in regard to that situation was that it is a choice – not a completely uncontrollable situation that left no other option than living paycheque-to-paycheque. I was pointing out that there *are* other options available, even if not to your preference.

  50. Kai says:

    I fully expect everyone to read and say “oh no – I have to completely change the way I do everything because someone on the internet disapproved!”
    Isn’t that why anyone posts on the internet?

    One doesn’t need to pay for protection if the bank makes an error. And a person would need to make a pretty big error to overdraft if they aren’t just spending everything as it deposits.

    What is anyone’s comment relevant? It’s a discussion. People bring in their opinions. Mine is that it’s a big mistake to have your finances set up in such a way that you spend money you don’t have for whatever reason, and paying money to protect yourself when you do is a pretty bad ‘solution’ to the problem.

  51. Katie says:

    But not all these programs even cost money – some are just about limiting the damage when something does happen! Listen, it’s great you never make a mistake, but that’s just not the reality of life for most people and figuring out the best way to plan for then handle those mistakes is actually responsible.

  52. elyn says:

    On the order of making mistakes- I made a big one once that is funny now, but wasn’t then: I was paying bills while sleep deprived (grad school plus a very strenuous job to help pay for grad school). I accidentally wrote a check for the balance in my checkbook ($500+), rather than for the amount on the bill ($20). Oops. I had no idea I’d even done so until my rent check bounced a few days later. Overdraft protection would have been handy back then, and I love it now. Also, the experience made me sympathize with people who get Alzheimer’s- these sort of mistakes probably happen first.

    What bothers me here is that Trent is saying (wrongly in many cases) that it is cheaper AND better to bounce a check rather than use overdraft. It is like saying (to a much smaller degree) that it is cheaper and better to forego car insurance, and just ask whoever you hit to waive the expenses incurred… Except in many cases, overdraft protection costs absolutely nothing unless you make a mistake.

  53. Bill in NC says:

    Overdraft protection is much cheaper than bouncing a check IF you can get a credit account at an institution that only charges actual interest.

    If that credit line will only be used for a few days before being repaid then even a 12% interest rate is cheaper than paying $35 for each bounced check.

    Sadly, even my credit union now charges per overdraft, instead of just charging me interest.

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