Overdraft protection is just another product the bank offers, as a way for individual to pay off an expense that comes through, and they do not have enough money in their bank account to cover it. You may think this is really nice of the bank, but don’t kid yourself, it’s not free, it’s very costly, and you could end up in overdraft pit for a very long time.
Here at Total Debt Freedom, we speak to hundreds of consumers each month and believe it or not, 9 times out of 10, the consumers will tell us when we go over their monthly budget that they have money owing in their overdraft. The biggest reason people are in this situation, is because how the product is designed!
From experience we’ve learned your overdraft protection limit is usually based on your monthly earnings divided by 2. So, in easy terms if you earn $2000.00 per month, then your over draft limit is $1000.00.
Here’s the catch. You need to have your overdraft amount owing paid in full for a minimum 24 hours each month, or look out.
Think about this for a second. If you are at your limit, this means you will need to take one full pay check and pay the overdraft off. If not, the penalties are high and the interest rate even worst. You are better off getting a low interest rate line of credit, and using this as an overdraft in case of an emergency, and you don’t have the funds to cover an unexpected expense.
Also, if you are putting in one full paycheck each month, can you really afford to keep it there and not use it anymore? NO, you need it for other expenses!! I consider an overdraft like being on the merry-go-round of debt except you don’t go in circles, you are in the pit all the time.
I go into further detail in my video below on overdraft protection, check it out.
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