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So, you guys, I have an overdraft on my banking account. When I first started shopping detox, one of my plans was to eventually wean myself off of the overdraft. It's just that... I kind of count on that money. So... I haven't exactly gotten rid of it yet. Or stopped using it. Um. OK, here we go:

A history of me and overdrafts

"Hello, good sir. I am here to deposit my money in a respectable manner."

1) The bank account I had in my late teens/early 20s gave me an overdraft without me even realizing it. I remember buying some tights one day, thinking "My card will probably be declined. OH WELL! Tights are cute LALALALA" and then it wasn't declined, and I was surprised. And even more surprised when I saw that my bank balance was a negative amount.

2) So, then, realizing that I suddenly had $200 FREE MONEY (*note: I realize now that's not what an overdraft is) I happily spent it all. All the time. Routinely. FREE MONEY!

3) When I made my first baby steps toward financial sanity three years ago, I set up a new bank account WITHOUT OVERDRAFT. Hahaha, I thought. I have outsmarted my brain.

4) ... slightly panicky about not having exactly enough money for rent, I apply for, and receive, a $100 overdraft. BUT THAT'S IT, I tell myself.

5) ... I apply for another $100 overdraft.

6) ... which I somehow routinely use like money.

"Thanks for the free money! Do you like my hat?"

So, I need to get rid of this overdraft. My instinct is to just wait until next payday, and get the bank to remove it. But, I consulted my erstwhile Frugal Advisor who suggested that I should wait until I have some more money saved up in my checking account, like a buffer against rent checks bouncing, etc.

I don't know. Do I just get rid of it, remove the temptation, and live like someone with $200 less? Or do I save up a little buffer and *then* get rid of the overdraft? Or do I just attempt to develop self-control and stop using the overdraft using will power?


Anonymous said...

Okay, I disagree with your FA, I have found what I spend expands and contracts with what I have to for 2 yrs I paid $200 a month to my credit card for my dental work..promised myself that once it was done, I would save that money..has it happened I have more money..nope...I payed the last$200.00 in I think that you would adjust quickly to not having that option and spend accordingly..(oooh those lovely white tights..oh wait, I don't have the cash for them this month) ..that is my 2cents :-)

Anonymous said...

I agree with JEM - get rid of the overdraft ASAP. I've made it 28 years without ever having overdraft protection on my checking account, and have never bounced a check. You can do it too!

Katy P said...

I don't know, Ann - your instincts are probably right, here. With your overdraft in place you'll be trying to both wean yourself from using it, AND save a significant enough buffer to keep rent cheques from bouncing. Why not just do one thing at a time? Get rid of overdraft first - THEN work on building the buffer up bit by bit. And focus on "I have to build the buffer" not "I can't use my overdraft". Positive self talk type thing.

~Carla~ said...

I have overdraft on my account & it's been used (accidentally) ONCE in the last 17 years. I don't think it hurts to have it as long as you realize it's NOT YOUR MONEY. ;)

Bryan said...

I had a similar relationship with overdrafting a couple of years ago. My bank's overdraft policy went all the way to -$500 though, which got me into sticky situations a number of times (after the fact, I went back and calculated how much, overall, I had spent on overdraft fees, and the final, embarrassingly high amount shocked me). After getting a couple of overdraft fees on $5 purchases, I realized that if I only had $50 in my account, and I knew that I would "need" a few hundred dollars for various expenses before my next payday, it made more sense to take 3 or 4 hundred bucks out in cash and only get one overdraft fee. While this was better than getting an overdraft fee for each small expense, obviously, that was not a sustainable practice.

One issue that helped me avoid doing that any more was that the US started regulating banks and, instead of defaulting towards giving everybody a few hundred bucks in overdraft "protection," banks (or at least, I think, my bank) now default towards just declining purchases when the balance gets to zero.

While the "what-if" scenarios of rent checks bouncing and so forth may make a compelling argument towards keeping the overdraft protection, I'd lean towards contacting your bank and getting rid of it, as not having that safety net has helped me to avoid overdrafting.

Hanah said...

I think it's like credit cards - ya gotta go cold turkey. Plus, aren't the fees and interest on overdrafts pretty bad?

Serendipity said...

I've had overdraft on mychecking account since I was 18 and used a lot back then when I wasn't sure how it worked. Like you, I thought it was free money! And I could use it since ya know I was gonna pay it back and all. I was hit with a tone of fees and realized it wasn't worth it. What about not getting rid of it but building a buffer? I think once you get that going you won't have to worry about using an overdraft because you'll have the buffer and you'll feel better!

Annabelle said...

Wowzers, thanks for the comments, everyone! It's so great to get a bunch of outside perspectives on this.

@JEM - great point. I think that if I have less money, my spendings will just expand or contract by necessity.

@Anonymous - you are my new role model!

@KatyP - excellent advice. Focusing on one thing will help make it easier. And positive self-talk is KEY!

@Carla - I think the only way to convince myself it's not money is to just get rid of it. I'm way too used to using it as a free $200!

@Bryan - sounds like we have (or had) similar spending patterns. It's sobering to think that if my card is declined, that's that, but it's the sort of reality that I need to get used to in order to start properly managing my finances!

@Hanah - I don't even know what the fees are (I kind of don't want to know). But yes, I can assume they're pretty bad. So really, I'll be *makling* money by getting rid of it (i.e. saving on monthly fees)

@Serendipity - it's very reassuring to know other people (mis)used overdraft the same way I did and still do.

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