Overdraft Protection: Good or Bad? pt2

Much controversy surrounds the issue of overdraft loan products. As you may know, even if you do not have a linked account for overdraft protection, banks will still allow you to overdraw your account when you make check payments, withdraw money from an automated teller machine, or use a debit card. Then, they routinely charge overdraft fees. Legislation was recently proposed in an attempt to end this practice. However, representatives from five major consumer advocacy groups are disappointed with the outcome issued by the Office of Thrift Supervision, the Federal Reserve Board, and the National Credit Union Administration concerning bank overdraft loan products. The new proposal will require banks that allow overdrafts to provide a right to opt out of these programs, but the new proposal does not require banks to obtain permission to "opt-in" the overdraft programs before enrolling account holders in the systems.

According to a recent Center for Responsible Lending (CRL) survey, consumers want, but are not getting the choice of whether or not their checking account will include a fee-based overdraft loan feature. Interestingly enough, respondents to the survey reported that they would overwhelmingly prefer that their debit transaction be denied at the checkout counter if approving it would cost them a $34 fee. The CRL survey also found that 16% of respondents pay 71% of overdraft fees.

Keep in mind that overdraft protection is intended to help you out in case you accidentally overdraw your checking account once in awhile. According to Bankrate.com, banking experts estimate that approximately 50% of consumers that have overdraft protection use it every month. If you find yourself using this service this frequently, you may consider keeping better track of your expenses. Our tips on how to balance your checkbook listed below may help you bounce less checks and use overdraft protection as little as possible. After all better debt management is the key to living better debt free.

Overdraft Protection: Good or Bad? pt 1

The term "bounce" or "bouncing" can refer to fun children's games or a cute newborn baby. However, when the word bounce is used to describe a check, negative thoughts may come to mind.

Let's face it. Most of us have inadvertently miscalculated our checking account or forgotten about an automatic deduction. It can happen to even the most budget-conscious individuals. Unfortunately, these simple oversights may have resulted in a debt problem or an overdrawn account and costly fees. According to the Center for Responsible Lending (CRL), a $100 overdraft with a $34 fee has an APR of 8.84% if the overdraft lasts 2 weeks. In addition, your bank may also charge you a daily fee, averaging $2 to $5, for each day your account has a negative balance.

Overdraft protection may help you avoid some of these fees and aggravation associated with bounced checks. You usually have to sign up for this service and have an additional account with your bank. If your account becomes overdrawn, overdraft protection kicks in and obtains funds from a savings or checking account, a credit card, or a home equity line of credit. Because of your limited access to credit, you may consider using an additional checking or savings account for overdraft protection.

When it comes time to re-establish your credit, you may want to reconsider using a credit card or line of credit for overdraft protection. Bankrate.com states that consumers may incur 18 percent or more in interest when they use credit for overdraft protection. Some banks may also charge an annual fee or cash advance fee for this service. With most overdraft protection plans, banks usually deduct money from the linked account in certain increments. For example, if your account is about to be overdrawn by $10, your bank may still take $50 from a line of credit. Therefore, banks encourage you to spend and borrow more money than you really need.

Secrets to creating a budget

You'd never set out on a cross-country road trip without consulting a map. And, likewise, you can't expect to reach yourfinancial goals without developing a plan for spending and saving.

Budgets play a pivotal role in helping consumers pay off debt, feather their nest egg and make the most of their hard earned dollars. However, many Americans lack the money-management skills necessary to get their bank accounts under control. Many people write out budgets all the time without knowing where their money is really going. What they've created is a wish list of how they'd like to spend their money, but it's not realistic. Many novice budgeters make the mistake of becoming too financially conservative, at least on paper.

In setting budgets, it is important to not cut all the fun out of your life. This is where priorities come to play a major factor. You can't have everything you want, but you can direct your dollars toward things you want the most. If you enjoy eating out often, try limiting it to once a week.

Once you've determined how much to set aside for saving, spending and investing; it's time to make those numbers stick. The growing popularity of credit and debit cards makes it all too easy to rack up credit card debt. Try using cash for everyday purchases. With the exception of your mortgage and car loan, most consumers should implement a strict policy of paying with cash for groceries, clothes, vacations and non essential items. When spending cash out of an envelope you begin to get a better feel for where your money is going and what your priorities really are.