What Are the Dangers of Overdrawing?

That little overdraft can lead to big problems if you're not careful.

That little overdraft can lead to big problems if you're not careful.

So you don’t remember exactly how much is left in your account and you’re hit with an overdraft notice. No worries, you think. I just withdrew too much, everybody does that from time to time, right? Well, if you continue to overdraw time and time again, those overdrafts can cost you quite a bit in the long run and overdrawing on an account or line of credit will not only affect you in monetary penalties, but may also affect your ability to get new credit.

Fees

You wouldn't take a handful of bills out of your wallet and throw them out the window, would you? Sadly, that's exactly what you are doing with overdraft fees, especially since these fees are avoidable with a little caution and planning. Overdraft fees can range from $15 to $50, depending on the bank and your account and some banks may even start charging you extra if you overdraw on a regular basis.

Future Credit

While applying for credit, or even a loan such as a mortgage or a car loan, creditors may look at more than just your credit score. Some creditors actually check out your bank account history as well. While one little overdraft is probably not going to affect you, a history of overdrawing or overdrawing by large amounts can raise a red flag to your creditors and just may cost you that loan.

Collection Woes

Even if potential creditors don't look at your bank account, they generally do look at your credit report. If that overdraft fee isn't paid quickly, the bank may decide to pursue debt collection options like hiring a collection agency. Not only are credit collection agencies persistent in their collection of the debt; they may report the debt on your credit report, lowering your credit score and affecting future credit.

Criminal Offense

You wouldn't think a little thing like an overdrawn account would be enough to put someone behind bars, but continuously overdrawing or writing checks on an account with a negative balance is illegal in certain states and depending on the severity of the situation, you could suffer fines or even go to jail. So if you have a pretty bad overdraft problem or just want to stay informed, check the laws in your state. Or better yet, make sure you know your balance and spend only what you have. You could be saving yourself a ton of trouble in the future.

About the Author

Casey Anderson is a part-time writer and full-time marketer who has been published on websites such as Opposing Views and Salon. She has also contributed articles to local Detroit Magazines, Strut and Orbit. A Wayne State University Master of Business Administration graduate, Nation began her writing career in 2001 and has extensive experience in business and research writing.

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