You might be one of the countless men and women who think overdraft protection is a good thing…
I’ll show you why you’ve been led to believe that and what the truth behind it really is.
Let me start off by saying that there might be rare instances where overdraft protection might help you. For example, if your rent check would bounce or your mortgage payment wouldn’t go through …
Yet in reality, here’s what overdraft protection really is: it’s a loan from the bank to cover mistakes that you might make in math.
You should never be relieved to use overdraft protection. Overdraft protection is something that you should ideally never touch…
It is a loan and it costs you money. Overdraft protection has to be paid back, the bank might either take the money back automatically next you time you deposit, or you might have to make a separate payment… it depends on your specific bank
and contract.
And keep in mind, since the bank sees you as a financial risk, there might be substantial interest applied to this loan.
You cannot rely on overdraft protection just as you can’t rely on your credit card to cover you when you don’t have money in your checking account.
I’ve even heard that some banks are talking about getting overdraft protection on your credit score. Can you imagine? It’s really not a good thing to have your credit score go down because of an overdraft protection mistake.
Now, I don’t know if any of you heard of this amazing story…
There was this female university student from London. The bank apparently made a mistake and gave her overdraft protection for everything she was buying. And even though she had virtually nothing in her checking account, she managed to spend around $3 million in overdraft protection.
And guess what? The bank considers it a loan and she has to pay it back.
So here you have this young college student who thought “Oh! I’m not even getting what’s going on but the money is always there in my account!” To be honest, I’m not quite sure what she thought.
And this is a prime example of you not keeping track of your funds… No one should really want or need overdraft protection. Just remind yourself: it’s not a good idea, its not a good idea.
It should be there only in case of an emergency situation, and hopefully if you’ve been going through our videos, you’ll be prepared to avoid those situations altogether.
It’s important to learn to live within our budget (except for emergencies which everybody has). We also want to learn to have discretionary funds which means we have money to play with. This is what you want to do instead of using overdraft protection.
Because all that will cause you is anxiety, sleepless nights, guilt, anger, and even shame. So let’s do things the right and healthy way and say no to overdraft protection.