We all know the feeling of panic when we look at our bank or credit card account only to find it in the negatives — that dreaded overdraft warning sign. Having your account in the negatives is not only concerning but also a major financial alert. Reaching this point can spell financial ruin if proper action is not taken. Learning to manage finances in a way that prevents overdrafts is the best way to ensure your future financial security. But if you find your account in the negatives, what exactly should you do?
The first step if you have overdrawn your account should be to assess the situation. How did you end up in the negatives in the first place? Are there payments you expected to be credited to your account that fell through, or did you overspend? Knowing the reasons behind your overdraft can help you determine the best course of action. Understanding the situation will also help you make better financial decisions in the future, which is the end goal for any financial emergency.
If you have overdrawn your account, you should also check with your bank or credit card company to see if you are eligible for an overdraft fee waiver or extension. Most banks offer secure overdraft protection systems to help customers who find themselves in the negatives, so it’s important to ask about any special offers that could save you from paying the full overdraft amount.
Once you have an understanding of the situation and know if you are eligible for any overdraft assistance, you will need to take steps to address the issue. Depending on your financial situation and the cause of your overdraft, there are a few options available.
If you have an account in the negatives, don’t panic — there are options. With a wealth of resources available, and a few simple steps, your finances can be back on track soon.
Step #1: Assess the Situation
The first, and arguably most important, step to getting out of the negative is focusing on the bigger picture. Determine exactly how much you’re in the red and try to figure out the underlying cause. While it might be difficult to look at your finances objectively, it’s essential to understanding the root of your financial issues.
Step #2: Create a Payments Plan
Once you’ve identified your financial shortfall, the next step is to make a plan for repayment. Even if you can’t pay off the full amount all at once, creating a budget and payment plan can help make progress in a more manageable way.
Make sure to decide on a payment amount you can really stick to, as well as a timeline for when payments are due. If you need help figuring out a plan, your bank or credit union may be able to assist you.
Step #3: Prioritize Your Payments
When devising a payment plan, prioritize paying off your current debts first. Which debts are the most important? Try to focus on the items with the highest interest rate or late fees; this will cost you the most money over time, and repaying what you owe faster ensures that you won’t accrue more debt.
If you have multiple accounts in the negatives, try to spread out your payments equally. This will help ensure that none of your lenders are excessively overdue on the payments.
Step #4: Consider Debt Relief
While prioritizing payments is an effective way to get out of the negative, consider other debt relief options if you’re struggling to make a dent in the red.
One option is to take out a consolidation loan, which can combine all of your existing debt into a single loan with one monthly payment. By consolidating your debt, you’ll be able to simplify your payment system and potentially reduce interest charges.
If you’re behind on payments and already have a bad credit score, you might also want to investigate debt settlement. Companies such as National Debt Relief or Freedom Debt Relief specialize in negotiating with lenders on your behalf.
Step #5: Talk with Your Lender
When your account is in the negatives, don’t be too embarrassed to speak with your lender. Talking to your lender could result in a lower interest rate or a more convenient payment plan.
If you’re able to negotiate with your lender, try to get everything in writing. That way, you have documented evidence of the new agreement in case of any hiccups.
Step #6: Create a Budget
Now that you’ve enacted a payment plan, the next step is to come up with a budget for future financial stability. Building a budget that lays out your income, expenses, savings plan and debt payments can help you do just that.
When making a budget, be sure to factor in your necessary expenses like rent and utility bills, as well as extraneous spending like entertainment or travel. Additionally, consider cutting back on excessive spending to help free up more money for debt repayment.
Step #7: Improve Money Management
The final step in the debt repayment process is to focus on better money management.
Start by setting up automatic payments to your lenders and creditors. This helps ensure that you don’t incur any late fees or penalty charges.
Furthermore, consider setting up a separate bank account just for bills and expenses, and track your payments and spending regularly. This way, you won’t have to worry about unexpected shortages — and you can set your sights on larger financial goals.
Having an account in the negatives isn’t uncommon, but that doesn’t mean it’s sustainable. By assessing the situation, creating a budget, and taking advantage of available options, it’s possible to dig yourself out of such an unfortunate financial situation. Developing good money habits and setting clear financial goals will not only help prevent future debt, but also lay the foundation for success.