What’s Brilliant About Avoiding Bank Overdrafts?

It may seem like a simple question: Why should anyone avoid overdrafts on their bank account? But the simple answers – that they cost money in fees, plus end up as a “ding” against your credit score – only tell half the story.

The other half is learning how to be savvy about how you do it. The road to financial freedom is not one smooth highway. There are bumps, curves, narrow and wide sections, times when you’re stuck going slow and other times when you have to decide if you want to risk aggressively passing the other guy – all points where smart decisions must be made. It’s about developing the skills and becoming familiar with important tools.

Take the bank overdraft problem (please!). These days, we have many automatic withdrawals for everything from utilities and telecom (phones, cable TV and broadband Internet hookups) to car and home payments, insurance and condo fee assessments. The problem is when an emergency expense happens – it can drain your bank account even as those automatic withdrawals loom in the days ahead.

What to do?

You have several options:

Get cash advances from your credit card – The fees can be steep, particularly if the cost folds into your credit card balance.

Get a cash advance from your next paycheck – The fees are steep when you take a year to pay them off. But few borrowers require so much time. These payday loans are usually paid with the next paycheck to come, taken care of in a matter of weeks, not months or years.

Ask family members for cash advances – This actually works in some families, although data suggest it’s a rare phenomenon. When you borrow personal loans  from friends or family, be sure to articulate the transaction on paper before money changes hands.

As should be clear, each of these approaches requires you to do something different or something new. While that is difficult for most people, to change a routine or try something they’ve never done before, it’s all a part of good stewardship of your resources – money and intellect – to give it your best shot. When you do, you are practicing your God-given brilliance at finding solutions to sticky, costly problems.

Guest Post by Elisa