This is still the time of the year when people are trying to make changes, whether you made a resolution or just want to improve an area in your life. Most of these changes revolve around weight loss or financial independence, getting a handle on your debt. I took on the January Money Diet, and while not perfect it has shown me where I tend to spend my money. There is one thing I don’t hear people talk about avoiding to get control of their finances.
We hear talk about credit cards and the interest rates we pay on them, late fees, cable bills, cutting down the minutes on our cell phone plans….but the most expensive extra charge I know is Overdraft Protection.
Sure your credit cards could be eating up a large portion of your paycheck paying for things you purchased, and upwards of 20% interest (or more), but have you thought about what happens when you over draw your bank account with over draft protection?
Let’s say you are even 50 cents short on your account, your bank will pay your check, or debit transaction and charge you a minimum of $36 dollars (which is what my bank charges, but other banks in the area charge as much as $50). You are now out the $36-$50 plus what amount you overdrew your account by.
Using an example of a credit card with $500 balance with 20% interest you will pay $100 in interest. But what if you have a balance of $1.00 you will pay .20 in interest. Which is cheaper, the credit card or the overdraft protection?
Rather than accept overdraft protection, I leave a few dollars over what I need to pay my bills and take the rest out of my checking account. I keep some money on hand, because it’s pretty hard to over spend when you don’t have enough cash, and give myself an allowance.
What do you do to stay within your budget?