Sarah Edwards | October 19, 2022
Summary: Here is SoloSuit's guide to negative bank balances, their possible effects, and how to avoid going under.
It's not unusual to have a negative bank balance. Usually, this happens by accident—your bank account may have been drafted for an item you weren't expecting, or an automatic deposit that is normally put into your account didn't go through. In most cases, if a bank account drifts into negative territory, it's for a small amount of money.
Unless you have an overdraft agreement with your bank, most banks will stop further transactions from going through via your debit card or withdrawals. They'll also prevent further draft activity and will refuse checks. This can reduce the chances of you incurring a significant amount of money that you owe to your bank to bring it into a positive balance.
In this article, we'll discuss the aspects of a negative bank balance and how to quickly recover from one.
A negative bank balance occurs whenever your bank account goes below $0. For example, you may write a check for $1,000 in rent, but your bank account may only have $800 in it. If the bank allows your check to be drafted to your account, you'll have a bank balance of -$200, plus any charges that you incur as a result of the overdraft of your account. To bring your account back into a place of good standing, you'll have to deposit enough to cover the overdraft of your account.
In most cases, people quickly eliminate their negative bank balance by simply depositing the amount needed to get their account back in good standing. However, there are certain consequences that your bank may impose, especially if you consistently have a negative bank balance, such as:
Now, let's take a moment to break down each of these consequences in detail.
Banks are entitled to charge an overdraft fee for each transaction that results in a negative balance. These can add up quickly, especially if you're using your debit card for multiple small transactions in a short span of time. The typical overdraft fee charged by banks is between $30 and $35.
Thus, if you use your card for four different transactions of $15 that lead to an account balance of -$60, you may incur fees for as much as $140 on top of the $60 you overdrafted.
Let's take a look at an example.
Example: Hannah has a checking account with Wells Fargo, and when she pays her rent at the beginning of the month, her account goes in the negative by a few dollars. Hannah gets charged $35 each time her account is in the negative for one day. Wells Fargo can charge $35 per day for up to three days. This means that if Hannah doesn't add funds to her account to make sure the balance is positive, she may be charged up to $105 for having a negative account balance for more than three days.
If you do nothing to resolve your overdrawn bank account for more than a given amount of time, your bank will probably close your account. You'll need to find another bank to handle your regular banking activities. The bank will report the closed account, which may result in potential difficulties in opening a new one with another bank.
Your bank will likely begin collections activity against you once they have closed your account. This can result in lots of phone calls and letters from your bank attempting to recover the amount you owe them. If the amount is significant, you may be the subject of a lawsuit seeking to reclaim the amount owed.
If your account is overdrawn for any reason, you'll want to take action. Use these simple steps as a guideline. Here are four actions you should take if your account balance falls below $0:
Once you realize that your account is overdrawn, stop using it. If you have automatic payments that are typically withdrawn from the account, put a hold on them. Don't use your debit card associated with the bank account for any purchases, and definitely don't write any checks.
You don't want a negative balance hanging in your account for too long. Try to make arrangements to settle the amount due as quickly as you are able. This may be as simple as depositing your paycheck into the account or transferring money from another account that you hold.
If you don't overdraft your account on a regular basis, your bank may be willing to waive the fees they have charged for overdrafted items. While they don't have to do this, it never hurts to ask — especially if you've been a long-term customer. To ask for waived fees, contact the customer service line on the back of your debit card.
If a merchant or other business regularly drafts your account for services they provide, and their charges did not go through due to the overdraft, contact them immediately to arrange payment. Failure to do so can lead you to be in debt with them. Depending on the company and the type of services provided, they may cut off your access if they don't receive their payment. Common examples of this are telecommunications companies and utilities.
To avoid negative bank balances, stay on top of your finances. Make sure you have a monthly budget and stick with it. Set up a regular practice of checking your available balances on at least a weekly cycle. If your bank balance commonly dips under $100, you may want to do this daily.
Most banks offer a service where they notify you if your bank balance becomes low. If you sign up for this, you'll receive an email, text message, or automated phone call whenever your balance falls below a certain amount. This is a free service and can prevent you from facing overdraft fees if you take steps to ensure the balance doesn't drop any lower.
While overdraft programs may sound helpful by promising to cover charges when you don't have the money available, they are expensive. Each charge may incur a fee of up to $35. By not signing up for the overdraft program, your bank must refuse charges that come through your account, eliminating the potential for significant negative balances.
If you're being sued by your bank for a negative balance, SoloSuit can help you respond in court. You can save yourself the stress and money of hiring an attorney and represent yourself instead. The first step to winning a debt collection lawsuit is to respond.
Learn more about how to respond to a debt collection lawsuit here:
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You can ask your questions on the SoloSuit forum and the community will help you out. Whether you need help now or are just looking for support, we're here for you.
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