What is a prepaid debit card? These cards are similar to standard debit cards, with a few exceptions. Just like standard debit cards, you can use prepaid cards to make in-person purchases at most locations that take Visa or Mastercard. In many cases, you can even use these cards to make online purchases.
Instead of depositing money into an account at your local bank, you load money directly onto a prepaid debit card. Some cards also let you set up a direct deposit so you can have the funds from your paycheck directly loaded onto your card.
You can only spend up to the amount of money you have on your card. This may help prevent hefty overdraft fees that some banks and credit unions charge. However, most prepaid debit cards charge other fees, such as monthly maintenance and transaction fees.
Why Would You Want a Prepaid Debit Card?
There are many reasons you might want to consider purchasing a prepaid debit card. For starters, prepaid cards are often more convenient and safer than carrying cash around. These cards can be a good option for those having trouble getting a standard bank account or facing excessive overdraft fees.
Because prepaid debit cards only allow you to spend the value on your card, they can help you curb your spending and gain better control of your finances. It’s important to note that prepaid debit cards don’t help build your credit. They also don’t accrue interest no matter what your balance is.
How Can You Get a Prepaid Debit Card?
Prepaid debit cards are fairly easy to obtain. Many major retailers, such as Walmart and Target, sell these cards. Prepaid cards are also available through some banks and credit card companies. You may be required to provide proof of identification and incur a one-time activation fee.
When choosing a prepaid debit card, be sure to compare your options. Most prepaid cards charge a variety of fees, such as monthly maintenance and transaction fees. Be sure you understand all the costs involved when choosing the right prepaid debit card.
You also want to compare added features. For instance, if you want a prepaid card that allows you to have your paycheck directly deposited onto your card, make sure it offers this feature before purchasing it. Other features you may want to consider are the ability to link your bank account to your debit card so you can transfer money quickly or the ability to give a family member access to your account.
How Do Prepaid Debit Cards Work?
Using a prepaid debit card is pretty simple. Once you purchase the card, follow the activation steps before using it—keep in mind that you may incur a one-time activation fee. If you didn’t load money at the time of purchase, you must do so before using it.
Most prepaid cards allow you to add money by phone, online, or in person at the location you purchased the card. Depending on the type of prepaid card you purchase, you may also be able to set up a direct deposit to have your payroll check load directly on your card.
Once you have money on your card, you can make purchases at most locations that accept Visa or Mastercard, such as retail stores, restaurants, and grocery stores. You can also use ATMs to withdraw cash.
Additionally, you can use your card to pay bills or shop online. However, some cards require you to register your card before making online purchases. To register your card, you just need to follow the instructions that came with it.
Keep in mind that your purchases can’t exceed the balance on your card. For instance, if you try to purchase an item for $300 but only have $275 on your card, the transaction will be denied. The good news is that you won’t face any overdraft fees, and you can’t spend more money than you have available.
Pros and Cons of Prepaid Debit Cards
Before you purchase a prepaid debit card, it’s important to consider the advantages and disadvantages of using this card.
Pros of Prepaid Debit Cards
Reloadable prepaid debit cards have several great benefits, including:
Having an easy approval process that doesn’t require good credit
Serving as a convenient and safe alternative to carrying cash
Preventing overdraft fees
Keeping you from overspending so you can develop good spending habits
Being accepted at most places that accept Visa or Mastercard, including in-store and online purchases
Withdrawing cash from ATMs
Cons of Prepaid Debit Cards
These cards also have numerous disadvantages that you should be cautious of, including:
Numerous fees, including activation, monthly maintenance, transaction, and ATM fees
Not helping repair or build your credit
Not accruing interest no matter what your balance
Having the possibility of transaction and balance limits
Not being accepted by many hotels and car rental companies
Before purchasing a prepaid debit card, it’s important to understand its fees and limitations. Be sure to read the fine print so you understand exactly what fees you might incur while using the card. Additionally, read through the policies to see if the card includes any deposit, withdrawal, or balance limitations that may hinder your ability to use and save funds.
Because prepaid debit cards don’t help you build credit, you may want to consider applying for a credit card instead. Start by checking your Free Credit Score to see if you might qualify for a credit-building credit card.
If your credit score is too low to qualify for a credit card, a prepaid debit card may be a good solution while you work on rebuilding your credit. Credit.com’s Extra Credit® subscription has tools that can help you take steps to build your credit and track your success.
Inside: Escape the cycle of being broke with insightful tactics. Learn to invest, save smartly, spot financial traps, and build secure money habits today.
You are desperate right now. You want to know why I am broke.
I get it. This is a situation I have been in before and just recently when I lost my main source of income.
The feelings of you can’t afford anything may send you down a steep spiral of depression.
So, how do we escape?
Here are the tips I used before and plan to use again.
Top Reasons for Why I am Broke
#1 – The Mindset Traps That Keep You Broke
A mindset that cultivates a sense of scarcity rather than abundance can be a massive roadblock to financial prosperity. When you’re shackled by thoughts like “I am always broke,” you unwittingly set the stage for a self-fulfilling prophecy.
The mental narrative that convinces you wealth is unattainable can keep you trapped in a loop of missed opportunities and poor financial decisions.
You may inadvertently sabotage your potential to earn more, save, or invest wisely by clinging to a defeatist paradigm.
Fixing a broken mindset is about shifting from a state of helplessness to one of deliberate, empowering action.
It starts with self-awareness and is further built through intentional positive affirmations and financial education.
Overcome By: Remember, the mind is powerful—it can be your greatest ally or your most formidable adversary. Change your money mindset.
#2 – Living Beyond Your Means: A Fast Track to Empty Pockets
Living beyond your means is akin to constantly filling a sieve with water, hoping it will someday retain more than it loses—a surefire way to financial drought. It’s a lifestyle where your outflow far exceeds your inflow, and every paycheck evaporates into the ether of consumerism.
With the advent of credit cards and buy-now-pay-later schemes, the temptation to spend money we don’t have has never been greater.
The façade of affluence conceals the grim reality of financial instability.
Acknowledging this trap is step one. Living within one’s means doesn’t imply sacrificing joy or reverting to asceticism; it’s about striking a harmonious balance between the lifestyle you desire and the one you can sensibly afford.
Overcome By: Making choices aligned with your financial reality, finding contentment in simplicity, and prioritizing financial health over transient pleasures.
#3 – Chronic Debt: Borrowing from Tomorrow for Today
Chronic debt is a pervasive issue, ensnaring individuals in a vicious cycle of borrowing today and worrying about repayment tomorrow. This pattern often stems from an urgency to fulfill immediate desires or needs without adequate financial resources.
Alarmingly, the trend of increasing consumer debt signals a culture obsessed with instant gratification as consumer debt is $16.84 trillion in Q2 2023, according to Experian. 1
Being in debt should not be normal.
The onus of breaking free from chronic debt lies in reevaluating your relationship with money. It means slowing down the urge to splurge, meticulously planning for future financial obligations, and carving a path towards debt repayment.
Overcome By: Find the discipline to not only stop accumulating debt but also to aggressively tackle existing debts through methods like debt snowball or debt avalanche strategies.
#4 – You Haven’t Learned to Plan and Budget for a Brighter Tomorrow
The lack of a strategic financial plan and a detailed budget is tantamount to navigating unknown terrain without a map. Without these critical tools, your finances are left to chance rather than choice, leaving you vulnerable to the whims of circumstance.
Budgeting is perhaps the most fundamental step toward taking ownership of your financial future. It gives you a clear snapshot of where your money is going, which is essential for making informed spending decisions.
However, many avoid the budgeting process, perceiving it as restrictive or complex. The truth is that budgeting liberates you from the anxiety that comes with uncertainty. It empowers you to align your spending with your financial goals and to find a balance between today’s necessities and tomorrow’s aspirations.
Overcome By: Choose a budgeting method whether it be the zero-based budget, the 50/30/20 rule, or the envelope system, the key is to find a method that resonates with your lifestyle and stick to it.
#5 – No Emergency Fund to Weather Financial Storms
An emergency fund is an essential bulwark against the financial tempests life invariably hurls your way. Without it, a single unforeseen event—a job loss, a medical emergency, or an urgent car repair—can capsize an already precarious financial ship. The lack of an emergency cushion extends an open invitation to debt and financial strain.
The data tells a stark tale:
A statement from the Consumer Financial Protection Bureau highlights that nearly a quarter of consumers (24%) don’t have an emergency savings account. 2
Additionally, 39% have less than a month’s worth of income saved for emergencies, setting the stage for potential financial disaster. 2
This precarious situation has become more pronounced with the increasing cost of living and high inflation rates witnessed in 2021-2023.
Overcome By: Structured, automatic savings transfers to facilitate the gradual growth of your emergency fund without it feeling like a financial blow. The goal is to build a reservoir robust enough to cover several months of living expenses, providing a comfortable buffer that can help you bounce back from setbacks without the need to borrow money at high-interest rates or liquidate precious assets at inopportune times.
#6 – Lack of Understanding of The Power of Investing
Understanding the power of investing is key to grasping the potential of a seed. A seed, given the right conditions, can grow into a flourishing tree. Similarly, investing allows your finances to grow beyond the confines of stagnant savings.
Yet, many people fail to harness this power due to a lack of understanding or fear of the unknown. This was me for many years until I decided to learn to trade stocks.
A common misconception surrounding investing is that it’s solely the playground for the rich or financially savvy. This myth steers many away from multiplying their wealth via investments, leaving them to rely solely on their primary source of income. Moreover, a lack of understanding often leads to panic during market volatility, resulting in ill-timed decisions to buy high and sell low—contrary to sound investment strategies.
Overcome By: Invest money consistently into a low-cost mutual fund or ETF that tracks the overall S&P. Then, continue your investing education on how to invest in stocks.
#7 – Wasteful Spending Habits
Wasteful spending habits are the quiet thieves of financial security. They nibble away at your earnings, leaving you wondering where your money has gone at the end of each month. This pattern often goes unnoticed, as it’s usually composed of small, seemingly insignificant purchases that accumulate over time.
The danger of wasteful spending is its subtlety.
It’s the daily coffee on the way to work, the meal out because cooking feels like too much of an effort, or the impulse buys during the sale season.
Individually, these do not seem like considerable expenses, but together, they can consume a substantial portion of your budget.
To curtail this financial leak begins with recognizing and acknowledging these habits. Tracking every penny spent can be an eye-opening experience, illustrating just how quickly the ‘little things’ can add up. With this awareness, one can then consciously decide where to cut back.
Overcome By: Adopting a minimalist approach, where value and purpose become the benchmarks for every expense, can help combat wasteful spending. Questions like, “Do I really need this?” or “Will this purchase add value to my life?” can serve as useful filters. Take up a no spend challenge to see your mindless consumption.
#8 – Fail to Recognize the Patterns That Lead to a Near-Empty Wallet
Failing to recognize the patterns that deplete your wallet is akin to ignoring the signs of a leaking roof until it caves in—it’s a disaster in the making. Often, it isn’t one significant financial blunder, but rather a series of small, recurring missteps that lead to the near-empty wallet syndrome.
For instance, routinely underestimating monthly expenses can lead to a perpetual state of surprise when the bills pile up.
Similarly, neglecting to keep tabs on bank account balances may result in overdraft fees that, over time, take a sizable bite out of your funds.
Disregarding the accumulative effects of late payment charges or routinely paying only the minimum on credit card balances can exacerbate financial distress.
Overcome By: To reverse this trend, one must become a detective in their own financial mystery. Start by scrutinizing bank statements and tracking expenses. Look for patterns, like repeated late-night online shopping sprees or habitual dining out, which contribute to the thinning of your wallet. Use budgeting apps or spreadsheets to flag these patterns visually, making it easier to identify and amend them.
#9 – How Fear and Denial Contribute to Ongoing Money Issues
Fear comes in several forms: fear of failure, fear of taking risks, and even fear of facing the truth about one’s financial situation. It can immobilize individuals, preventing them from making necessary financial changes or taking action that could otherwise mitigate or reverse money woes.
For instance, the fear of losing money might dissuade one from investing in potentially lucrative opportunities, leaving them stuck in the low-yield safety of a savings account.
Further, there’s the psychological phenomenon of denial—a defense mechanism that numbs the pain of reality. When faced with mounting debt or budgetary failure, denial kicks in, allowing individuals to live as if the problem doesn’t exist. Unfortunately, ignoring overdue notices or dodging calls from creditors doesn’t make debts disappear.
Denial only deepens the financial hole, often leading to larger, more complex problems.
Overcome By: To confront these challenges, it’s crucial to adopt a stance of brutal honesty with oneself. This means acknowledging fears and confronting financial shortcomings head-on. Professional help, such as financial counselors or advisors, can provide support and guidance to navigate these tricky emotional waters.
#10 – No Clear Financial Goals and Plans
The absence of clear financial goals and plans is like embarking on a voyage without a destination. It not only leads to aimless wandering but also ensures that you miss out on the focus and motivation that well-defined objectives provide.
When you lack clarity on what you’re saving for or what you wish to achieve, there is little impetus to resist the temptations of immediate gratification or to weather the short-term sacrifices that long-term gains often require.
Setting clear and measurable financial goals lays the groundwork for creating effective plans to reach them.
Overcome By: To break this cycle, begin by reflecting on what you value most and where you would like to be financially in the future. Whether it’s achieving debt freedom, owning a home, funding education, or planning for retirement, having specific goals in mind will define the purpose of your financial activities. Craft a plan that outlines the steps needed to accomplish them.
#11 – Laziness is your Game
When you approach your finances with a laissez-faire attitude, it’s akin to ignoring the health of a garden; without regular attention and effort, it’s bound to wither. Financial laziness can manifest in various ways, from failing to review bank statements and ignoring budgeting to neglecting opportunities to cut costs or boost income.
Each act of omission is a step closer to the financial doldrums.
Procrastination or avoidance might seem less painful at the moment, but they ultimately compound the problem. Contrary to what some might think, simple acts of financial diligence, such as cash management or regularly doing household chores, do not require Herculean effort.
Moreover, they set a foundation for sound financial habits that thwart needless spending.
Overcome By: Schedule time for financial management much like an important meeting.
#12 – Keeping up with Others is Breaking Your Bank
The urge to keep up with others—often termed the ‘Keeping up with the Joneses’ or ‘Keeping up with the Kardashians’ phenomenon—is a profound pressure that exerts an invisible, yet powerful, force on financial habits. This social comparison can lead to an insidious form of competition, one that disregards personal financial realities in favor of an illusory social standing.
It’s an impulse driven by comparison, where the benchmark of success is set not by personal satisfaction, but by the possessions and lifestyles of others.
The decision to upgrade to a luxury car, splurge on designer clothes, or redo a perfectly functional kitchen stems not from need, but from a desire to project an image that matches or surpasses those in your social sphere.
Financial guru Dave Ramsey encapsulates this philosophy with his common saying, “Live like no one else will now, so in the future, you can live like no one else can.” This means making money moves that are right for you, not those dictated by social pressures, which can sometimes involve humbler living now for a wealthier future.
Overcome By: Breaking free from the shackles of this social competition requires introspection and a bold reaffirmation of personal values. Adjusting focus towards personal financial goals and aspirations, rather than mirroring others’ spending decisions, is key.
#13 – Need Help Differentiating Needs from Wants
The blurring line between needs and wants is a common financial pitfall that can lead individuals deeper into the morass of money woes.
Needs are essentials, the non-negotiable items necessary for survival—food, shelter, healthcare, and basic utilities.
Wants, on the other hand, include anything that is not vital for basic survival but enhances comfort and enjoyment of life.
The difficulty in distinguishing between the two often stems from habituation. What starts as a luxury, like eating out at restaurants, getting a high-end smartphone, or subscribing to multiple streaming services, can quickly become perceived as essential. This is particularly difficult in a consumer-driven society, where advertising and social media constantly inflate our perception of what we ‘need’ to lead a fulfilling life.
The result? A budget that’s stretched thin on non-essentials, leaving little room for savings or investment.
Overcome By: Regularly reassess expenses and ask the hard questions about whether a purchase is genuinely essential or merely a desire dressed up as a need.
#14 – You Don’t Make Enough Money to Cover Your Expenses
When your income doesn’t cover expenses, the strain can be relentless. This financial imbalance is often the stark root of the “I am broke” refrain. In such cases, every dollar becomes precious, and the financial breathing room feels nonexistent.
The reason is straightforward: if what comes in is less than what goes out, deficits and debt are the inevitable outcomes.
Addressing this challenge requires a two-pronged approach—increasing income and/or reducing expenses. For many, reducing expenses is the immediate reflex, and while it’s an essential strategy, there’s only so much you can save, but no limit to how much you can earn.
Overcome By: Focus on making more money. This could mean asking for a raise, seeking better-paying job opportunities, pursuing a side hustle, making money online, or acquiring new skills that offer higher income potential.
Long-Term Solutions to Build a Secure Financial Future
Building a secure financial future is an aspirational goal for many, but achieving it requires a strategic approach characterized by foresight, discipline, and an understanding of personal finance.
Becoming financially independent doesn’t happen by magic chance; it’s the result of deliberate actions taken with consistency over time.
Here are the foundational blocks for constructing a sturdy financial edifice:
Invest in Financial Literacy: Knowledge is power, and this is especially true in the realm of finance. Educate yourself about budgeting, investing, insurance, taxes, and retirement planning. Reliable resources include books, online courses, podcasts, and workshops.
Set Clear Financial Goals: Define what financial success looks like for you, whether it’s being debt-free, owning a home, or achieving financial independence. Detailed goals provide direction and motivation for your financial plan.
Create a Robust Budget: A flexible budget isn’t a one-time exercise but a living document that should evolve with your financial situation. It should reflect your income, fixed and variable expenses, and financial goals.
Establish an Emergency Fund: This is the bedrock of financial security. Aim to save three to six months’ worth of living expenses to protect yourself from unforeseen circumstances without falling into debt.
Pay Off Debt: High-interest debt is a major impediment to financial growth. Utilize strategies like the debt snowball or avalanche methods to tackle debts efficiently. Once you’re debt-free, avoid accumulating new debt.
Diversify Income Streams: Relying on a single source of income is a risk. Look for opportunities to create additional streams of income, such as side businesses, freelance work, or passive income from investments.
Invest Wisely: Make your money work for you through smart investments. Consider diversified portfolios, retirement accounts, and tax-efficient investment strategies to grow your wealth over time.
Plan for Retirement: The future is closer than you think. Contribute regularly to retirement accounts like 401(k)s or IRAs. Take advantage of employer match programs if available, as they’re essentially free money.
Protect Yourself with Insurance: Ensure you have adequate insurance coverage for health, life, property, and potential liabilities. This helps to guard against catastrophic financial losses.
Breaking the Cycle of Being Broke
Just like becoming broke is often a gradual process—a few uncalculated loans, hasty investments, and numerous credit card swipes. Suddenly, financial stability seems like a far-off dream.
The same goes for breaking the cycle of being broke. It is about moving from living paycheck to paycheck with no savings, drowning in debt, and making questionable spending decisions to become financially stable.
Even though our society may see being broke as normal, it is possible to embrace financial prudence to defy such norms. It’s time to delve into the reasons behind the perpetuation of brokeness and unveil practical steps toward lasting financial freedom.
What do I do if I’m broke?
Finding yourself in a financial predicament where the end of your money arrives before your next paycheck is a stress-inducing scenario.
When faced with the stark reality of being broke, here’s a step-by-step guide to help you navigate through and set the stage for a more stable financial future:
Assess Your Situation: Take stock of all your available assets and resources. This includes checking account balances, any savings, and items you could potentially sell for quick cash. Understanding what you have can help you gauge your immediate next steps.
Prioritize Your Expenses: Sort your expenses by urgency and necessity. Essentials like rent, utilities, and groceries come first. Non-essentials or discretionary spending should be paused or significantly reduced until your financial situation improves.
Reduce Costs Immediately: Eliminate any non-essential expenses. Cancel or suspend subscriptions, memberships, or services that are not vital. Consider cheaper alternatives for necessary expenses, and utilize community resources, such as food pantries, if needed.
Negotiate with Creditors: If you’re struggling to pay your bills, proactively reach out to creditors to discuss payment options. Many are willing to work with you on a revised payment plan to avoid defaults.
Seek Additional Income Sources: Consider taking on a side job, selling unused items, freelancing, or offering your skills for short-term gigs. Even small amounts of additional income can make a significant difference when you’re broke.
Consider Assistance Programs: Look into local, state, and federal assistance programs. You may be eligible for temporary aid to help with food, housing, or utility bills.
Borrow with Caution: If borrowing is unavoidable, be cautious and choose the most cost-effective options such as loans from family or friends, a personal loan with a low-interest rate, or a hardship withdrawal from your retirement account (as a last resort).
Remember, being broke can happen to anyone, so there’s no shame in it.
The key is to take swift, decisive action to mitigate the immediate crisis while also planning longer-term strategies to prevent recurrence. By addressing the issue head-on and adjusting your financial habits, you can initiate the journey from being broke to becoming financially buoyant.
FAQ: Navigating Away from Being Broke
Finding yourself consistently broke at the end of each month is an indicator that there’s a disconnect between your income and your spending habits.
It’s often the result of several factors or behaviors that, when combined, result in a cycle of financial scarcity. Here are common reasons why this might be happening:
No Budget or Poor Budgeting
Overspending
Impulse Purchases
Lack of Emergency Savings
Failure to Track Expenses
Living paycheck to paycheck
High Debt Payments
Remember, understanding why you’re broke at the end of the month is the first step towards financial stability.
Saving money when funds seem stretched to their limit is a challenge that requires creative strategy and discipline. Even with a tight budget, there are ways to eke out savings without significantly impacting your day-to-day life.
If saving a significant amount seems daunting, start by saving your change. Physically save coins or use apps that round up your purchases to the nearest dollar and save the difference. Check out my mini savings challenges.
Saving money when it seems there’s barely enough to cover the bills begins with a commitment to take whatever steps are necessary, however small they may initially seem. Every dollar saved is a step towards financial resilience and a buffer against future financial challenges.
Investing can be a powerful tool for building wealth over the long term, and it’s often considered a key component of achieving financial stability. However, for those who are currently struggling to make ends meet, the decision to invest should be approached with caution.
Investing typically involves committing money with the expectation of achieving a future financial return. It has the potential to outpace inflation and increase your wealth due to the power of compound interest. Nevertheless, it often carries the risk of losing the invested capital, a risk that those in financial distress may not be in the position to take.
Feeling Broke without Money – Time to Make A Change
Feeling broke is a stressful and demoralizing experience, but it’s also a clarion call for change. It signals that your financial health needs attention and that your money management strategies may require a significant overhaul.
However, the situation is not without hope; with determination and the right approach, it’s possible to transform your financial landscape.
The journey away from the precipice of being broke begins with honesty, introspection, and a willingness to adapt. It’s about confronting uncomfortable truths, devising a clear plan, and taking decisive action. From crafting and adhering to a precise budget, cutting unnecessary expenses, to seeking additional income streams—all these steps are essential in the path to financial stability.
Remember, feeling broke isn’t a permanent state. Mindset is everything.
It’s a challenge to be met, an opportunity for growth, and a chance to steer the course of your financial ship towards calmer and more abundant waters. Your future self will thank you for the changes you implement today, so take that first step now.
>>>It’s time to make a change—because you deserve the peace of mind that comes with financial security.
Source
Experian. “Experian Study: U.S. Consumer Debt Reaches $16.84 Trillion in Q2 2023.” https://www.experian.com/blogs/ask-experian/research/consumer-debt-study/. Accessed January 25, 2024.
Consumer Financial Protection Bureau. “Emergency Savings and Financial Security.” https://files.consumerfinance.gov/f/documents/cfpb_mem_emergency-savings-financial-security_report_2022-3.pdf. Accessed January 25, 2024.
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An interest checking account is, as the name suggests, a checking account that earns interest. Typically, checking accounts haven’t offered this feature, while savings accounts did. However, there are a number of interest-bearing checking accounts now available that can help your cash on deposit grow.
Typically more flexible than savings accounts, interest checking can give you a financial boost if they’re a good fit for you. In some cases, however, they may have minimum requirements and other aspects that may not sync up with your money style.
Here’s a closer look at these interest-bearing checking accounts, so you can decide if one might be right for you. Learn more about:
• What is an interest-bearing checking account?
• How do interest-bearing checking accounts work?
• How much interest could you earn?
• What are the pros and cons of interest checking accounts?
What Is an Interest Checking Account?
Whether it’s called an interest-bearing checking account, interest checking account, or high-yield checking, this is a type of checking account where the account holder can earn interest. The interest rate may not be amazingly high: At the end of 2023, the rate averaged 0.70% APY, or annual percentage yield, which is the real rate one earns when compounding interest kicks in. (Occasionally, APYs of 3.00% or higher may pop up.) Even at the lower range, the interest accrued is better than nothing. Honestly, who doesn’t want to earn more interest?
There may, however, be a catch:
• Although the account will pay an APY, account holders may be required to pay monthly maintenance fees or maintain a certain account balance (say, $500 or more).
• In addition, you may be required to receive a certain number of or dollar amount of direct deposits per month or meet other criteria, such as relating to debit card usage.
• You might also have to pay a monthly account fee; again, it depends on the bank you choose. Recent research found that checking accounts had an average monthly fee of $10.77; where an interest account will fall can vary with the financial institution.
• One more point: In many cases, interest checking accounts earn less interest compared to savings accounts.Yes, a checking account has added flexibility that may be beneficial (say, unlimited transactions and debit-card and check-writing features), but it’s worth noting. You might consider a combined checking and savings account to get the best of both worlds.
💡 Quick Tip: Want to save more, spend smarter? Let your bank manage the basics. It’s surprisingly easy, and secure, when you open an online bank account.
How Do Interest-Bearing Checking Accounts Work?
These types of accounts work in a similar way to other kinds of checking accounts. Account holders can make deposits at ATMs, online, by direct deposit, or at branch locations depending on the financial institution.
As for withdrawals, account holders can make bank transfers, withdraw cash from an ATM, write a check, use bill pay, or pay for purchases with a debit card. The only difference is that, instead of earning no money on your balance, you will accrue some interest, usually on a monthly basis.
How Are Interest Checking Accounts Different Than Other Checking Accounts?
The truth is, checking account interest rates will vary depending on the type of account and the financial institution. On average, banks offer an APY of 0.07%. There are high-yield checking accounts that could pay more, but these rates are generally still lower than what you could earn with a savings account. That said, with a little online research, you might find an interest checking APY of 3.00% or higher at this time. Those couple of extra points of interest may well be worthwhile as part of your plan to grow your wealth.
Just be sure to note the account requirements, as mentioned above. If you have to keep more money in the account that is comfortable for your budget and cash flow, you could wind up incurring late fees elsewhere in your financial life.
Here’s an example:
• Perhaps you decide to pay your credit card bill late because you didn’t want your checking account balance to dip below the minimum to earn interest.
• You opt to wait for your next paycheck to hit before you send your payment to your card issuer.
• The credit card fee for the late payment is likely more than the interest you’re earning on the money in your checking account.
So in this situation, keeping your money in an interest checking account might not be a win-win for you.
Common Account Requirements for Interest Checking Accounts
When it comes to opening an interest-bearing checking account, there may be some requirements to wrangle. Keep the following factors in mind:
• Minimum-balance and other account requirements: When you open an account, some financial institutions may require a minimum initial deposit. Current offers for interest-bearing checking range from zero dollars to $500 and occasionally significantly higher amounts as a minimum deposit. Shop around to find the right account for your needs.
Plus, as mentioned above, you may need to maintain a certain balance in order to avoid fees. There may also be other rules such as the amount of transactions you can make on your debit card.
• Fees: Some interest checking accounts may charge monthly fees, as described earlier in this article, which could eat into the interest you earn. You may have to keep a higher balance in your account to avoid fees. Other fees to consider are overdraft fees, and whether you’ll need to pay third-party network fees to access certain ATMs.
• Application requirements: Depending on the financial institution, you may be required to submit documents such as your Social Security number, proof of address, and government-issued photo ID. If you want to open a checking account with a credit union, you’ll most likely need to become a member.
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Advantages and Disadvantages of Interest Checking Accounts
An interest checking account may not be the best option for you. Consider the following advantages and disadvantages before opening an account.
Advantages of Interest Checking Accounts
• You’ll earn interest Most traditional checking accounts won’t pay you any interest, but with an interest-bearing one, you’ll earn high interest. That means your money will help you earn some money while it’s sitting in the account. Typical APYs can range from 0.50% to 3.00% or higher.
• You’ll have more flexibility Checking accounts tend not to have transaction limits as you may with savings accounts or money market accounts. Plus, you can use checks and a debit card, offering you more flexibility to access your money.
Disadvantages of Interest Checking Accounts
• You may have to meet certain requirements Though there are some interest checking accounts that don’t have minimum balance requirements or monthly fees, some do. That means you could be on the hook for a monthly fee if you can’t meet account requirements. In some cases, these fees could negate the amount you earn in interest.
• You may not get a high interest rate The interest you earn on a checking account tends to be lower compared to ones you earn from a high-yield savings account or money market account. But there are definitely exceptions to the rule: Some banks have offered as much as 3.00% APY or higher on interest checking accounts, so it can truly pay to shop around and see if you can snag one of those deals.
💡 Quick Tip: Are you paying pointless bank fees? Open a checking account with no account fees and avoid monthly charges (and likely earn a higher rate, too).
Where Can I Get an Interest Checking Account?
You can open an interest checking account at most financial institutions, including traditional and online banks, as well as credit unions. As mentioned before, you may be required to become a member of the credit union you want to open a checking account with.
When shopping around, look beyond interest rates. Other equally important factors to consider are:
• Account features (access to your funds, for instance; when the interest accrues)
• Account-holder benefits (are there other perks to being an account-holder, such as a sign-up bonus?)
• ATM, overdraft, and other fees
• Minimum opening deposit and account balance requirements to earn interest.
Is It Worth It to Get an Interest Checking Account?
Thinking carefully about your financial situation and goals should help you determine whether it’s worth getting an interest bearing checking account.
• For those who want to keep a decent amount of money in a checking account to ensure bills and daily transactions are taken care of, it might be worth considering. Why not earn a bit of interest if you can find an account that doesn’t charge fees?
• However, if you’re interested in having a stash of cash available for short-term or medium-term savings goals — as in, you’re not planning on making frequent withdrawals — then a high-yield savings or a checking and savings account might be the better choice.
• If your goal is to save for long-term goals like retirement or a college fund for your child, then an investment account could be the way to go.
Recommended: How to Avoid ATM Fees
The Takeaway
An interest-bearing checking account may be a good fit if you’re looking for an account for daily transactions that can grow your money a bit. It’s important to check the fine print to see if there are any minimum balance requirements and what the fees are. Comparing the potential interest to be earned with any fees that may be charged is a vital step before applying for an interest checking account.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
Better banking is here with up to 4.60% APY on SoFi Checking and Savings.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.
SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.
A credit limit is the maximum amount of money a person can currently borrow from a financial institution.
Credit cards and lines of credit let us borrow funds from banks, credit unions and various companies. Credit limits determine just how much money we can borrow without incurring penalties like overdraft fees. Americans tend to gradually increase their credit limits as they age; Experian® reported that the average credit card limit for Generation Z in 2022 was $11,290, while the average credit limit for Baby Boomers was $40,318 that same year.
“What is a credit limit?” may be such a common question because multiple factors can influence a person’s limit. We’ll explore this question and discuss how to increase your credit limit.
Key takeaways:
Financial institutions largely set credit limits based on a borrower’s credit history.
Credit utilization is based on your credit limit and your available credit.
Regularly practicing good credit habits can increase your limit
Table of contents:
How are credit card limits determined?
Your credit limit is determined by the institution you borrow money from, whether they’re a bank, a credit union or a government agency. Credit limits take several factors into account, including your income and credit score. People with higher credit scores and income are normally approved for higher credit limits because lenders view them as financially responsible people.
Annual revenue
When a borrower applies for credit or asks for a credit limit increase, lenders look at annual revenue. From their perspective, a borrower with more income is more likely to make their payments on time—and vice versa.
Credit score
Credit scores help us qualify for auto loans, mortgage interest rates and credit cards—plus the limits we’ll receive when approved. If you have good credit, then you’ll likely be eligible for high-limit credit cards from the get-go.
Debt-to-income ratio
Lenders can use your debt-to-income ratio to set your credit limit by weighing your monthly debt payments against your total income. A low debt-to-income ratio can prompt lenders to offer higher credit limits since your spending habits show you regularly make responsible financial choices.
Employment status
Your employment status can also affect your credit limit largely due to timing. If you apply for a credit card or ask for a limit increase while you’re seeking a job, you’ll most likely receive a lower limit than you would as a full-time employee.
Credit limit vs. available credit
A person’s credit limit and their available credit are heavily tied together, which can cause people to confuse these two terms. To clarify, your available credit refers to the amount of money you can still borrow after calculating your debt. On the other hand, your credit limit refers to the total amount of money that your lender lets you borrow.
For example, if you have a $10,000 credit limit and spend $5,000, you’ll still have another $5,000 in available credit that you can access during this billing cycle. Your credit utilization ratio is calculated by weighing your available credit against your total credit limit. In this case, your credit utilization would be 50 percent.
How does your credit limit affect your credit score?
Whenever you ask a lender to increase your credit limit, they’ll perform a hard inquiry to review your credit history and help inform their decision. Inquiries briefly cause your score to dip, which is why conventional wisdom recommends not attempting to increase your credit limit right before applying for something vital—like a home or a new car.
Credit limits can also affect your score if you consistently have a high utilization ratio. Credit cards with high limits typically help borrowers maintain lower utilization ratios, which is beneficial for credit health.
What happens if you go over your credit limit?
Exceeding your credit limit can have negative consequences, especially if you do so repeatedly. Some of the drawbacks you might encounter include:
Account review: A lender may review your longtime credit habits, which could potentially lead to a credit limit reduction.
Credit score changes: Credit utilization makes up 30 percent of your FICO® credit score. Repeatedly going over your credit limit could significantly hurt your credit.
Increased interest rates: Depending on your lender’s policies, they may issue a penalty APR on the offending account, which can be much higher than your standard rate.
Overdraft fees: Most lenders will charge a $35 overdraft (or over-the-limit fee) after a specified time period if you don’t pay off your balance.
How to increase your credit limit
If you consistently make your monthly payments on time and keep your utilization low, the credit card issuer may approve your request to increase your limit. But remember to allow six to 12 months before asking. Your issuer probably won’t raise your limit after just one or two months of opening the account or if you’ve been making late payments.
Some credit card issuers will actively increase your limit after they review your account history. Sometimes, they’ll ask you to update your income. If you’ve earned a raise recently, you can provide that information, and the lender may increase your limit. When an issuer reviews your account like this, it does not cause a hard inquiry because you didn’t ask for them to review the account.
Work on your credit with Lexington Law Firm
Credit cards are fantastic resources that can positively impact your life when used responsibly. Even if you get approved for a high credit limit, it’s best to monitor your spending and borrowing habits. Lexington Law Firm offers great services like credit education tools and credit report analysis that may help you with your credit.
Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.
Reviewed By
Brittany Sifontes
Attorney
Prior to joining Lexington, Brittany practiced a mix of criminal law and family law.
Brittany began her legal career at the Maricopa County Public Defender’s Office, and then moved into private practice. Brittany represented clients with charges ranging from drug sales, to sexual related offenses, to homicides. Brittany appeared in several hundred criminal court hearings, including felony and misdemeanor trials, evidentiary hearings, and pretrial hearings. In addition to criminal cases, Brittany also represented persons and families in a variety of family court matters including dissolution of marriage, legal separation, child support, paternity, parenting time, legal decision-making (formerly “custody”), spousal maintenance, modifications and enforcement of existing orders, relocation, and orders of protection. As a result, Brittany has extensive courtroom experience. Brittany attended the University of Colorado at Boulder for her undergraduate degree and attended Arizona Summit Law School for her law degree. At Arizona Summit Law school, Brittany graduated Summa Cum Laude and ranked 11th in her graduating class.
The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.
If you overpay your credit card, you won’t lose the money, and your credit won’t take a hit. You’ll just have a negative credit card balance, which you can use toward future purchases, or you can request a credit balance refund.
With so many things to keep track of in your financial life, it can be easy to make an occasional mistake. And while mistakes like a late payment can have negative effects on your credit health, there are other slip-ups that aren’t necessarily a bad thing—and overpaying your credit card is one of them.
If you overpay your credit card, perhaps due to an automatic payment and a manual payment overlapping, there’s no need to worry. You won’t lose the money, and your credit score won’t take a hit. You’ll know you’ve overpaid if you have a negative credit card balance.
What is a negative credit card balance?
A negative card balance means that something has happened to cause your balance to dip below zero. Your first thought may be that something is wrong—but a negative balance means that your credit issuer owes you money.
Common ways negative balances happen
Negative credit card balances are fairly common and are nothing to fret over. If you notice a negative balance, you may wonder what triggered it. Below are five common causes.
Your manual payments and autopay overlapped. If you manually paid an amount greater than your balance, you would have a negative balance. Alternatively, if you made a payment around the same time that an automatic payment happened, your balance could dip below zero.
You received a refund on a purchase. If you made a purchase with your credit card and then paid off your full balance, you would show a balance of $0. If you then returned the purchase and received a refund on the card, you would have a negative balance.
You earned rewards or statement credits. Some credit card companies offer welcome bonuses or cashback rewards in the form of statement credits. If you received credit when your balance was already zero, you would have a negative balance.
You reversed fraudulent charges. If you were the victim of credit card fraud or someone used your card without authorization, your card issuer would reverse the transaction. This could result in a negative balance, depending on how much was charged and your previous balance. If the fraud is reflected on your credit report, you can address it by filing a dispute.
You negotiated fees. If you can successfully negotiate with your credit card issuer to waive fees, you may end up with a negative balance if you’ve already paid off those charges.
What to do if you overpay your credit card
No matter the cause of your negative balance, you have two options:
Do nothing. Any future purchases you make will bring your account back to positive. If you don’t make any purchases on the card after six months, creditors must refund the full negative balance.
Request a credit balance refund from your credit card issuer. Since a negative balance means the credit issuer owes you money, many people opt to file for a refund to bring their account back to zero.
How to submit a credit refund request
Each credit card issuer has its own policy on how credit balance refunds work, so check with your financial institution for step-by-step instructions.
Typically, you can request a credit refund online, via mail or over the phone. A refund may be issued as cash, check, direct deposit or money order.
The Federal Trade Commission requires creditors to send you a credit refund within seven business days of receiving a written request. If you haven’t heard from them after seven days, follow up to ensure it was issued and processed correctly.
Fraud triggers
While credit balance refunds are usually executed without difficulty, there may be instances where your financial institution is suspicious of fraud. This typically happens if the negative balance is significant—like if you added an extra zero to your payment amount.
Large negative balances are a warning signal of refund fraud or money laundering. To combat this, creditors may freeze your account or even shut it down as a measure of consumer protection. If fraud is suspected due to a mistake, it may cause some inconvenience.
As soon as you become aware of a large negative balance, call your credit card company and explain the mistake. They’ll make your account right again.
How overpaid balances show up on your credit report
A negative credit card balance isn’t bad for your credit. In fact, it doesn’t show up on your credit report at all, so the three major credit bureaus will never know you have a negative balance—it will simply show up as zero.
Perhaps more important than the balance itself is the credit utilization rate. According to FICO®, this plays into the “amounts owed” category of your credit score, which accounts for 30 percent of the total score. When you have a negative balance, your utilization rate is zero percent, which works in your favor—typically, the lower your utilization rate is, the better.
4 tips to prevent overpaying your credit card balance
While there’s virtually no harm in overpaying your credit card balance, it may be a hassle to request a balance refund in the event of overpayment. Also, dealing with potential fraud triggers could prove frustrating. Here are four tips to help you avoid overpaying your credit card balance.
1. Check your statements regularly
Checking your credit card statement and knowing your balance is a great way to ensure you won’t overpay your credit card balance. Carefully review your statement before making a payment and note if there are any discrepancies.
Returns and refunds can also result in overpayment if they come through after you pay off the balance, so make sure you check that for any recent refunds.
2. Set up automatic payments
Automatic payments are extremely helpful—especially for avoiding late fees. Often, you can set up an automatic payment for a specific amount or to pay off the current balance. Just ensure you have enough in your checking account to cover the payment to avoid overdraft.
3. Avoid manual payments right before a scheduled payment
Manual payments that are soon followed by automatic payments can result in an overpayment. If possible, consider waiting until the automatic payment goes through and then pay the remaining balance.
4. Use account alerts
Banking and credit card companies often allow you to set up automatic alerts based on specific criteria. These alerts can come as a text, email or phone notification. You may consider setting up an alert when your card balance reaches a specific threshold.
Negative credit balance FAQ
There tends to be a bit of confusion related to negative credit card balances that may cause people to purposefully overpay in hopes of receiving a benefit. Let’s answer the following commonly asked questions to clear up any misconceptions.
Will overpaying my credit card increase my credit score?
Overpaying has no more impact on your credit score than paying the full balance does. Paying down your credit card to a zero balance is good for your credit, but you won’t see an extra boost by purposefully overpaying because it will still show up as a zero balance on your credit report.
If you’re looking to improve your credit score, try these tips:
Make all loan and credit card payments on time
Lower your credit utilization
Avoid closing old credit cards (even if you don’t use them)
Open a secured credit card
Become an authorized user on the credit card of someone with good credit
Apply for a credit building loan
Consider sending a pay for delete letter
Dispute inaccuracies on your credit report
Include rent and utilities on your credit report
Will overpaying my credit card increase my credit limit?
While having a negative balance may provide a little extra wiggle room for a future large purchase, it won’t increase your actual credit limit. If you have a balance of negative $100 on a card with a limit of $3,000, your official limit is still $3,000—it will just take you a bit longer to reach that limit since you have a $100 credit.
If you’d like to increase your credit card limit, try one of these three options:
Apply for a new credit card with a higher limit.
Request a higher limit from your credit card issuer.
Check to see if your credit card issuer will automatically boost your limit in the future.
Does overpaying my credit card allow me to profit from interest?
Overpaying your credit card isn’t the same as depositing money into an interest-earning savings account. You don’t earn interest on a negative credit balance—the money simply sits there until it is refunded or until purchases bring the account back to a positive balance.
Take control of your credit today
Lexington Law Firm has a team that can help you understand your credit and address any errors that may be negatively affecting it. Lexington Law Firm also offers continuous credit monitoring services to protect you from fraud and credit-related discrepancies. Ready to take control of your credit? Learn how we can help by getting your free credit assessment today.
Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.
Reviewed By
Sarah Raja
Associate Attorney
Sarah Raja was born and raised in Phoenix, Arizona.
In 2010 she earned a bachelor’s degree in Psychology from Arizona State University. Sarah then clerked at personal injury firm while she studied for the Law School Admissions Test. In 2016, Sarah graduated from Arizona Summit Law School with a Juris Doctor degree. While in law school Sarah had a passion for mediation and participated in the school’s mediation clinic and mediated cases for the Phoenix Justice Courts. Prior to joining Lexington Law Firm, Sarah practiced in the areas of real property law, HOA law, family law, and disability law in the State of Arizona. In 2020, Sarah opened her own mediation firm with her business partner, where they specialize in assisting couples through divorce in a communicative and civilized manner. In her spare time, Sarah enjoys spending time with family and friends, practicing yoga, and traveling.
Earned wage access is an employer-provided benefit that allows employees to access a portion of their paycheck ahead of payday. This can be immensely helpful for employees living paycheck to paycheck who incur unexpected, emergency expenses.
On-demand access to money that employees have earned can keep them from relying on more dangerous and costly alternatives, like payday loans, cash-advance apps, and even intentionally overdrafting their bank accounts. But earned wage access programs may also carry some fees, and they can inspire bad habits with budgeting and money management.
How Does Earned Wage Access Work?
Earned wage access (EWA) works similarly to a cash advance app, except that it’s an employer-provided benefit. Employees who work at a company offering this benefit can download the app of the third-party EWA provider that their company works with and then apply to access a portion of their paycheck.
Employers typically limit how much of a paycheck employees can access early. EWA providers charge a fee for this access. In some cases, the employee will have to pay the fee every time they use the service; in others, employers foot the bill as part of the benefit.
Recommended: What Are Credit Card Cash Advances?
Earned Wage Access Example
Here’s an example of how earned wage access (also sometimes called early wage access) might work in the real world:
An hourly employee earns $20 an hour, after taxes and retirement contributions. Though she receives her paycheck every two weeks, the employee realizes she needs money now to cover an emergency vet bill. She has already worked six days, meaning there are four working days before the end of the pay period — and more time before payroll processes.
She uses the EWA app that her company has partnered with to apply for early access to her paycheck. There is a $5 fee, but her company covers the cost as part of the earned wage access benefit. The EWA benefit is limited to 50% of her total pay for the period, so the employee then receives $800 ahead of her paycheck.
On payday, the employee usually receives a check for $1,600. Because she’s accessed $800 early, however, her paycheck will only be $800. 💡 Quick Tip: Some lenders can release funds as quickly as the same day your loan is approved. SoFi personal loans offer same-day funding for qualified borrowers.
How to Qualify for Earned Wage Access
Qualifying for earned wage access is easy. You just have to work at a company that offers it as a benefit. EWA is growing increasingly popular. Companies like Uber, McDonalds, and Walmart have all adopted early wage access as an employee benefit.
Unlike personal loans or credit cards, there’s no credit check to access the money early. Instead, you’ll just need to download the app of the program that your company has partnered with and connect it to your bank account or debit card to have the money transfer go through.
Earned Wage Access Pros and Cons
Earned wage access offers tremendous benefits, especially to employees who are struggling financially. However, EWA also has its fair share of drawbacks to consider.
Pros
• Fast access to money: The best way to handle unexpected expenses is to draw money from your emergency savings fund. In theory, the money will have been sitting there — in a high-yield savings account actively earning interest — so you don’t have to rely on credit cards, personal loans, cash advance apps, or payday loans. However, people who live paycheck to paycheck understandably can’t build an emergency savings fund. Earned wage access offers another path forward. You’ll be withdrawing money you’ve earned, just a little early. That means you aren’t taking on debt to cover life’s unexpected expenses.
• Easy to qualify: Taking out a personal loan for emergency expenses is often a smart idea if you don’t have the money in savings. But if your credit score is in poor shape, you might have trouble getting approved for a personal loan. Getting money through earned wage access may be easier. As long as your company offers this as a benefit, you don’t have to worry about credit checks and high-interest debt.
• No fees (or at least low fees): Many employers cover the admin fee of earned wage access for their employees as part of the benefit. Other employers might have arrangements with EWA platforms that don’t charge fees when employees access their funds early. Even if the employee is responsible for a transaction fee for an EWA, the cost is usually low.
Cons
• Smaller paycheck: When you need money in a pinch, earned wage access can be a great solution that doesn’t involve taking on debt. However, when payday arrives, your paycheck could be much smaller. Often, EWA platforms allow you to access up to 50% of your paycheck, meaning your payday will be cut in half. While you’ve covered the cost of the emergency expense, you’re now faced with paying your monthly bills on only half of your normal check. That could mean tightening your belt at the grocery store or making late payments on bills.
• A bad habit: Like cash advance apps or even payday loans, EWAs can be a slippery slope. You may access a portion of your paycheck early during one pay period, get a smaller paycheck as a result, and then need to turn around and access the next paycheck early to make up for your reduced paycheck. According to a 2021 study by the Financial Health Network, more than 70% of employees who utilized earned wage access used it in consecutive pay periods. It’s a difficult pattern to get out of — and could be even more detrimental if you change jobs and your new employer doesn’t offer EWA. In that case, you might be tempted to take out a predatory loan instead.
• Potential fees: In some cases, employees do have to pay for earned wage access. These fees are usually nominal, especially when compared to alternatives — overdraft fees from spending more than they have in their bank account or exorbitantly high interest rates for payday loans — but EWA fees should still be a consideration for people on a budget. Maybe there’s another alternative, like borrowing money from a family member or a payment plan for whatever emergency expense the employee has incurred.
Recommended: How to Avoid Overdraft Fees
Earned Wage Access vs Cash Advance Apps
Cash advance apps, also referred to as early payday apps, share some similarities with earned wage access. Both are typically managed through mobile apps and help you access cash flow ahead of your next paycheck.
Earned wage access, however, is offered solely through an employer. The employer may cover fees for the employees, and the amount a person can access is related to their actual paycheck.
With a cash advance app, consumers are responsible for any associated fees. Some apps may advertise no fees (and no interest), but they may charge a fee for instant transfers. Otherwise, you’ll have to wait a few days to get the money, which often defeats the purpose. Other cash advance apps might have a monthly charge.
The amount you can borrow through a cash advance app varies and may be tied to the cash flow of your linked bank account. Repeat borrowers may get approved for higher funds. Repayment is due on the borrower’s next payday.
Though hidden fees can make cash advance apps expensive, they’re generally a safer option than payday loans. 💡 Quick Tip: Just as there are no free lunches, there are no guaranteed loans. So beware lenders who advertise them. If they are legitimate, they need to know your creditworthiness before offering you a loan.
The Takeaway
Earned wage access can be helpful in an emergency situation, if your employer offers this benefit. However, EWA may come with fees, can make it more challenging to budget on payday, and may even lead to a recurring habit. As an alternative in an emergency solution, you can take out a personal loan. It won’t affect your upcoming paycheck, you can use loan moneyfor a variety of purposes, and it can give you the funds you need, at a low cost, to get through a financial hardship.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.
SoFi’s Personal Loan was named NerdWallet’s 2023 winner for Best Online Personal Loan overall.
FAQ
Is earned wage access a loan?
Earned wage access is not a loan. It allows employees at participating companies to access money they’ve already earned, just ahead of schedule.
What are the benefits of earned wage access for employees
Earned wage access offers employees several benefits, including fast access to money they’ve technically earned, no or low fees, and easy qualification requirements. (You’ve just got to work for a company that offers this benefit.)
What are the downsides of earned wage access?
Earned wage access can have some downsides. Employees may have to pay fees to get early access to their paycheck, the amount you can access is often capped at 50%, and it can lead to a bad habit wherein you regularly need money before your paycheck.
Photo credit: iStock/Ivan Pantic
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
The information provided on this website does not, and is not intended to, act as legal, financial or credit advice.
To increase your credit score to 800, you’ll need a nearly flawless payment history, a credit utilization rate well below 30%, a healthy mix of credit types, and an extensive credit history.
The average American has a credit score of 716, well within the range of what is considered a good credit score. Many people may be content with that score, but there are benefits of working your way up to the exceptional range, which starts at 800 according to the FICO® scoring method. If you’re wondering how to increase your credit score to 800, focused and careful financial habits might help you get there.
Learn more about this prestigious credit score and how to work toward it so you can improve your financial situation.
What Is an 800 Credit Score?
A credit score between 800 and 850 is considered exceptional credit. Only 23.3% of consumers have reached this credit tier, which has significant perks, including better interest rates and access to better financial products.
Several different credit scores exist, but lenders most commonly use the FICO Score, which is a number ranging from 300 to 850. Credit scores fall into five categories using this scoring method:
Very Poor: 300 – 579
Fair: 580 – 669
Good: 670 – 739
Very Good: 740 – 799
Exceptional: 800 – 850
How to Get an 800 Credit Score
An 800 credit score is more attainable than it seems. The average number of people with this score has increased steadily since 2010.
Follow the steps below to start your journey to better credit.
1. Obtain Your Credit Report and Resolve Any Discrepancies
First, request a copy of your credit report. Look for any discrepancies. File a dispute for any issues so your credit report is accurate. Credit score companies, such as FICO, base your credit score on the information in your credit report, so accuracy is essential.
If you notice errors on your report, you aren’t alone—according to an FTC study, roughly 25% of people reported errors on their credit report. Fortunately, you can challenge mistakes under the Fair Credit Reporting Act. Gather evidence to support your case and write a dispute letter to the reporting bureau. They have 30 days to investigate your claim and five days to notify you of their findings in writing.
2. Analyze Your Credit Report for Areas of Improvement
Once you’ve resolved any issues, analyze your report to determine why your score is lower than 800. Your FICO score looks at the following to determine your credit score:
Payment history: Whether you pay your bills on time and in full is the most important factor, accounting for 35% of your overall score.
Amounts owed: This refers to how much credit you’re using compared to your total credit limit, and it makes up 30% of your overall score. The less of a balance you carry from month to month, the better it is for your credit health.
Length of credit history: Credit history looks at the following and accounts for 15% of your credit score:
Age of oldest account
Age of newest account
Average age of accounts
How frequently you use revolving credit
Credit mix: FICO considers the types of credit accounts you have, such as revolving and installment credit. This factors into 10% of your score.
New credit: FICO bases 10% of your score on whether you’ve applied for several new lines of credit in a short time frame, indicating you may be overextending yourself.
Analyze your report with those factors in mind. Look for areas that need improvement:
Are you paying your bills on time?
Do you owe more than 30% of your available credit?
Is your credit history too short?
Do you only have one type of credit?
Have you opened too many lines of credit at once?
Based on the answers to those questions, you can determine what to focus on as you raise your credit score to 800.
3. Establish a Strong Payment History
The most significant factor in your credit score is a strong payment history, and Lending Tree found that 100% of people they surveyed with an 800 credit score pay all their bills on time and in full. If your credit report shows you have late payments, focus on improving your payment history.
Enroll in auto pay to ensure debts are paid promptly (but ensure you always have enough in your account to avoid overdraft fees). If you prefer to pay bills manually, add due dates to your calendar and set reminders to pay them.
4. Manage Your Credit Utilization
The second largest impact on your credit score is credit utilization, so you should prioritize lowering it. Total all your revolving credit debts (usually credit cards and home equity lines of credit) and divide that number by your total available credit. Then, multiply that number by 100 to get a percentage.
For example, if you have one credit card with a balance of $3,000 and a second one with a balance of $2,000, your total revolving credit debt is $5,000. If each card has a credit limit of $7,000, your total available credit would be $14,000. A balance of $5,000 in debt divided by available credit of $14,000 would be 0.357. Multiplied by 100, you’d get a credit utilization rate of 35.7%.
People with good credit scores tend to have a credit utilization rate below 30%. But if you’re working to earn an 800 credit score, you’ll want to keep that number even lower: The average credit utilization rate for people with 800 credit scores is 6.1%.
If your credit utilization rate is too high, start paying down your debt. Several strategies can help you tackle this effectively:
Debt snowball method: Use extra money in your monthly budget to pay off your smallest debt. Once you’ve paid that debt off, apply the minimum payment of that debt plus the extra money in your budget toward the next smallest debt. Over time, the money you put toward your debts becomes larger, like a snowball.
Debt avalanche method: Use extra money in your monthly budget to gradually pay off the debt with the highest interest rate. Then, apply that debt’s minimum monthly payment and extra money in your monthly budget to the debt with the next highest interest rate. With this strategy, you’ll save a significant amount of money on interest.
It’s also important to avoid taking on new debt while you pay down the balances of your existing debt. Establish a budget, stick to it, and avoid making large purchases unless absolutely necessary.
5. Maintain a Mix of Credit Types
Lenders want to see a mix of credit types on your credit report. These can include:
Mortgage loans
Installment loans
Credit cards
Retail accounts
Finance company accounts
You don’t need all of these account types on your credit report, but you should aim to have more than one since a person with an 800 credit score has an average of 8.3 open accounts.
But don’t take out an installment loan just to raise your credit score. Instead, consider a credit builder loan, which involves a lender depositing the loan amount into a savings account or a certificate of deposit (CD). You’ll receive the total amount once you repay the loan, which will appear as a personal loan on your credit report.
If you have loans but no credit card, consider opening one with a low credit limit and use it for one type of purchase, such as gas or groceries. Apply for a secured credit card if you can’t get approved for a traditional credit card. This type of credit card requires a cash deposit in the amount of the credit limit that operates as collateral.
6. Lengthen Your Credit History
Lenders want to see a long history of responsible credit, so lengthening your credit history can help you raise your credit score to 800. The average age of the oldest active account for those with an 800+ credit score is 21.7 years.
Improving this area of your credit often requires patience, but you can have someone with a long credit history, such as a parent or spouse, add you as an authorized user to their credit card. For example, if your parents have had the same credit card for 10 years and they add you as an authorized user, you’ll lengthen your credit history by 10 years.
Also, don’t stop using credit cards with a longer account history, or you risk decreasing your credit history. Instead, keep them active by making small monthly purchases and paying them off immediately.
7. Monitor Your Credit Report and Credit Score
As you work through the various strategies, monitor your credit report regularly. Report any errors, monitor your report for areas of improvement, and adjust your plan as needed.
You can check your credit report for free annually using sites like annualcreditreport.com. You can also prevent hard inquiries by placing a security freeze on your credit report. This helps prevent identity theft but can also help avoid unnecessary hard credit pulls that may harm your credit.
Some credit cards may allow you to see your credit score every month as part of your monthly billing statement. (Some issuers may offer this feature for free, while others may do it for a small fee.) Ask if your credit card issuer offers this benefit and use it to track your credit score regularly.
8. Be Patient and Persistent
Working to raise your credit score is a long-term commitment. Predicting how long it will take to improve your credit depends on several factors, such as:
Your current score
Your overall credit history
How much debt you owe
How quickly you can pay the debt down
Even if you don’t see gains right away, or they’re smaller than you’d like, stick with your responsible habits. Over time, your score should improve, and even if you don’t make it to the esteemed 800, you’ll still see the benefits of a higher credit score.
Benefits of an 800 Credit Score
Raising your credit score to 800 isn’t easy, but several benefits make it worthwhile.
Easier approval for credit applications. An applicant with an 800 credit score is a low-risk investment for lenders, so they’ll quickly approve you for credit as long as the debt fits your income level.
Lower interest rates on loans and credit cards. Lenders base the interest they charge partially on borrowers’ credit scores, so the higher your credit score, the lower your rate. Once you reach 800, you’ll be able to access the best interest rates on the market, often lower than the national average, saving you money over the life of the loan.
Higher credit limits on credit cards. Credit card issuers often reward people with good credit with higher credit limits—the average credit limit of someone with an 800 credit score is $69,346, much higher than the of $28,930. While this gives you more purchasing power, its biggest benefit is that it makes it easier to maintain a lower credit utilization rate.
Access to better credit card products. With a higher credit score, you’ll qualify for credit cards with better rewards. For example, you may get access to airport lounges or earn a higher rate of return on your cash back or airline miles.
Lower insurance premiums. Insurance companies often pull your credit before determining your rate. Increasing your credit score to 800 may result in a lower rate on your home or auto insurance when you apply for a new policy.
Improved rental prospects. If you want to rent, boosting your credit score to over 800 can give you access to more rental options. Landlords use credit scores to determine how reliable you’ll be at paying your rent, and with an 800 credit score, nearly every landlord will find you a favorable tenant.
Peace of mind. With an 800 credit score, you can access loans or utilize your higher credit limits on credit cards when hard times happen.
Improve Your Financial Habits With Credit.com
Improving your credit score comes with substantial benefits, especially when you reach the exceptional credit level. While raising your credit score to 800 can take a while, the financial peace of mind, lower interest rates, and other benefits are worth it.
Start your journey to an 800 credit score by addressing any discrepancies. Then, work toward improving financial behaviors that impact your credit, such as making on-time payments and minimizing your credit utilization rate.
Many people figure that paying bank fees is simply an unavoidable part of life. Recent surveys say the average American shells out anywhere from $167 to $288 per year in fees. But take note: Some or even all of those may be avoidable.
This guide will teach you about common bank charges and help you be a smarter consumer who doesn’t have to pay for all of them. From monthly maintenance to returned item fees, find out how you can save.
Understanding Bank Fees
For many financial institutions, fees are a way that banks make money. They can help cover the cost of being in business, and they can also cover situations that require more of their team’s time (say, dealing with an overdrafted account).
However, these charges can become expensive for many customers, and they can eat away at any interest earned. That can foil a customer’s efforts to grow their wealth.
Next, learn about the specific fees that many banks assess and how you can lower or avoid them.
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Monthly Maintenance Fees
If your bank or financial institution charges maintenance fees, you may be so used to watching that money disappear out of your account each month that you’ve simply stopped trying to figure out how to make it stop.
It isn’t unusual for banks to charge about $15 a month in maintenance fees, nearly $180 a year for this fee alone.
If you keep a large enough balance in this account, you can typically avoid paying a monthly maintenance fee at many banks. That’s great for those who have that kind of money, but this is the type of fee that often hits those who don’t have a lot of money in their accounts.
If keeping a larger balance in your account isn’t practical right now, then it can make sense to explore financial institutions that are more likely to not charge this fee. Online vs. traditional banks may not assess these monthly maintenance or account fees. Shop around, and see what’s offered.
ATM Fees
ATM fees come with unique pain points that can be especially frustrating. That’s because you sometimes have to pay a bank or a random ATM just to get your own money! And sometimes you’ll pay ATM fees twice on the same transaction: once in a surcharge by the ATM you’re using and, second, by the bank that issued your card.
To be specific: Out-of-network surcharges currently average $4.73, which is made up of $3.15 by the machine owner and $1.58 by your own bank, aka the issuer of the card you are using.
If you’re trying to budget carefully, this can be painful. To reduce how much you could pay in ATM fees, planning ahead might help. You could research locations of in-network ATMs and only make withdrawals there. Or use an ATM that’s in-network to get cash before you go shopping or out to eat at a cash-only location so you don’t have to use whichever ATM is nearby.
Here’s another idea for avoiding ATM fees: Many grocery stores and some big box stores will let you get cash back when you make purchases there. This could be another way to circumvent ATM fees.
💡 Quick Tip: Want a new checking account that offers more access to your money? With 55,000+ ATMs in the Allpoint network, you can get cash when and where you choose.
Overdraft Fees
Banks often have an overdraft program, so if you withdraw more than what’s currently available in your account, the bank won’t “bounce” the check. Instead, it will be paid, but often you will be charged an overdraft or NSF fee, depending upon your bank’s policies. (NSF stands for non-sufficient funds, and you’ll learn more about this charge below.)
Overdraft fees can average around $35 per instance. To avoid being charged, you could decline to sign up for overdraft service (which may lead to bounced checks or declined debit card transactions).
Or you could ask if your bank has a service where, if you overdraft on your checking account, the amount would be covered from your savings account. Note, though, that this kind of transfer may also come with a fee.
What may be most important here is, you may want to be clear about what your bank or financial institution will do in a certain circumstance. Let’s say that you’ve signed up for automatic bill pay at your bank. What will your financial institution do if there aren’t enough funds?
Pay it anyway and charge you an overdraft fee? A little research with your own financial institution could reveal the answer, and if it’s not what you want to hear, you could see if another institution handles the situation in a way that works better for you.
Recommended: Overdraft vs. NSF Fees
Insufficient Funds Fees
Here’s a common bank fee that is somewhat similar to overdraft charges: what are known as insufficient funds, non-sufficient funds, or returned item fees.
If you don’t opt in to have overdraft protection on an account, banks typically decline, or bounce, the transaction if there aren’t enough funds to cover a transaction.
Besides the problems associated with a bounced check (that is, the payee not getting their funds), there is typically a returned item fee, averaging around $30 for each occurrence. And, unfortunately, sometimes a returned item fee can take an account balance to the point where another check may bounce, causing the situation to become increasingly worse.
To avoid this bank fee, you might want to adjust your budget to allow for a cash cushion in your checking account, which can help you avoid this scenario.
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Wire Transfer Fees
There are times when you may need to send a wire transfer to quickly get funds to an account holder in the US or overseas. Wire transfers can smooth this process. But they may not be free: Wire transfer fees usually range from $0 to $50, with typical fees being $15 for incoming domestic and international transfers and $25 for outgoing domestic and $45 for outgoing international transfers.
A few ideas on avoiding these fees, if your financial institution charges them: Ask your bank if they will waive the surcharge; in some cases, they may. Use a payment service like Zelle, or, if you often make and receive international payments, you might look into getting a multicurrency or foreign currency bank account.
Inactivity Fees
If you have a bank account that you don’t use often, you might get charged what’s known as an inactivity fee or a dormancy if it sits untouched for a while. There are varying state laws that specify when a bank must turn dormant funds over to the state, as a form of unclaimed funds. Dormancy fees try to trigger account holders into action so that this handoff of funds to the government doesn’t happen.
Inactivity fees can typically range from $5 to $20, and the amount of time that must elapse before they are assessed will vary.
To avoid these fees, it’s wise to only have as many accounts as you can frequently manage. If you have an account you barely use, it can be a smart move to close it and transfer any funds to an active account.
Foreign Transaction Fees
If you’ll be going abroad, then you will likely need to deal with credit card foreign transaction fees. Credit card companies add these onto transactions processed by or passing through foreign banks; a typical fee is 3% of the transaction amount.
But what about your bank and fees when you travel? Some of them add a similar fee to debit card usage, so it’s wise to check on your financial institution’s policies before you travel. What’s more, banks often charge an additional 1% to 3% on international ATM withdrawals.
To help mitigate or avoid these bank fees (especially if you are a frequent traveler), you could check with your bank to see if it charges these fees. If it does, you might consider opening an account at a financial institution that doesn’t.
Also, perhaps your bank has affiliate banks in regions where you’re traveling, and you could withdraw from those ATMs without paying the additional international fees. You could also ask if your bank reimburses fees that you’ve paid.
As another way to reduce bank fees, you could exchange US dollars to foreign currency before you leave the country, perhaps eliminating the need for ATM withdrawals while traveling. Your bank might do this with no fees. However, then you do risk loss or theft of your funds.
Open a SoFi Checking and Savings Account
If you’re looking for a way to lower the bank fees you pay, see what SoFi offers.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
Better banking is here with up to 4.60% APY on SoFi Checking and Savings.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.
SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet..
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Inside: Are you struggling to make ends meet on a low income? This guide will teach you how to budget money effectively on a low income, so you can live a comfortable life without having to skimp on important expenses.
Let’s face it… Navigating through the budgeting on a low income can often feel overwhelming.
The fear of insurmountable bills, the anxiety associated with rising living costs, and the overall foreboding nature of budgeting often make for a persistently stressful experience.
However, it is crucial to understand that you are not alone in this journey. I have been in your spot as well as many Money Bliss readers.
Regardless of how daunting the budgeting task may appear, we truly believe that with the right guidance and adherence to solid financial principles, you are capable of achieving financial peace of mind.
This process will simply require patience, persistence, and strategic planning. This guide aims not only to shine a light on the struggles of budgeting with a low income but also to offer a beacon of hope.
This post may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. As an Amazon Associate, I earn from qualifying purchases. Please read the full disclosure here.
How to Budget Money on a Low Income
While it’s true that budgeting with a low income can be tough, proper money management can make it doable.
When you have less disposable income, it leaves you with less leeway in your budget. That’s why you have to be accountable and meticulously plan your spending to ensure financial stability.
So, let’s dig in and you can find success.
Step #1 – Figure out Your Monthly Income
Developing an effective budget starts with understanding your monthly income.
Here’s a step-by-step guide:
List out all income sources: This includes all your regular paychecks, part-time jobs, side hustles, social security, child support, or any other form of income you have. If your income is irregular, say from commissions or seasonal work, it’s advisable to base your budget on your lowest monthly income.
Account for taxes and deductions: To get an accurate picture of your disposable income, you need to factor in taxes and deductions from your earnings. You need to make sure you understand the difference between gross pay and net pay.
Include irregular income: If you occasionally get money from gifts, or sporadically earn from passive income sources like investments, be sure to include these too. As these are inconsistent, it is best to fund discretionary spending with this money.
Personally, I recommend using your net income with budgeting. This will give you an accurate budget that you can truly follow.
This knowledge is powerful when it comes to effective budgeting.
Step #2 – Define your bills and Expenses
Knowing how much you spend and what you spend your money on is another crucial step in budget planning.
The key is to define ALL your bills and expenses. Here are the personal budget categories that cover almost everything you can think of.
Now, you must do the following:
Identify your fixed costs: These are basics that you have to pay monthly and remain fairly constant, such as rent, car payments, and student loans.
Consider flexible costs: These expenses vary from month to month. Examples include groceries, transportation, electricity, water, and gas bills.
Remember periodic costs: Some costs only appear annually or semi-annually. For instance, insurance premiums, car registrations, and property taxes. It’s important to set aside money each month to cover these expenses when they arise. A sinking fund is great for these expenses.
Account for daily spending: Beyond fixed and flexible bills, consider your day-to-day expenses like shopping, subscriptions, and entertainment. Be honest about the little expenses. It’s often the small, frequent purchases that can derail a budget.
Prepare for unplanned costs: Finally, remember to budget for unexpected expenditures such as car repairs or medical bills.
By defining and categorizing your bills and expenses, you can see where your money is going and better manage your spending.
Step #3 – Reach a Zero Budget
A zero-based budget is a strategy that requires you to assign every dollar you earn to a specific expense or savings category, with the goal of having your income minus your expenses equal zero by the end of the month.
Write down your income: From the step before, you already know your total monthly income.
Subtract your expenses: Subtract the total of your monthly expenses (including savings) from your total monthly income. If you’ve correctly accounted for your income and expenses, the result should be zero. This is what it means to have a “zero-based budget”.
Balance the budget: If your income and expenditure don’t balance, adjust your variable expenses and other discretionary spending until they do. This can involve cutting back on nonessential overspending, like takeout meals or unnecessary purchases.
Allocate every dollar: With your budget balanced, each dollar should now have a purpose, whether it’s paying bills, going into savings, or providing for your daily needs.
Many people struggle to hit a zero based budget on the first try. It is common for your expenses to be higher than your income. Thus, a no spend challenge may help you identify what is important to actually spend your money.
Reaching a zero-based budget equips you with a clear picture of your financial status.
Thus, it allows you to use your money purposefully and prevents unnecessary spending. This way, even with a low income, you can still meet all your needs and work towards your financial goals.
What do you do if your budget shows your expenses are more than your income?
When your monthly spending exceeds your monthly income, immediate attention is needed to prevent worsening financial issues. Before panic sets in, consider taking the following steps:
Analyze your budget: Reevaluate and scrutinize your budget. There might be necessary adjustments overlooked or expenses incorrectly categorized. This will give you a clearer understanding of where your money is going.
Prioritize essential expenses: Allocate money to necessities like housing, food, utilities, and debt repayments first. Other less necessary expenditures, like entertainment and dining out, can be reduced or eliminated.
Reduce expenses: After prioritizing, identify areas where cuts can be made. Impulse buys, unnecessary subscriptions, or expensive habits might need to go.
Increase your income: Consider part-time jobs, side hustles, selling unused items, or picking up freelance work to bring in more money.
Seek advice if debt is weighing you down: As a last resort, you may look at ways to lower your interest rate on your debt. These strategies like debt consolidation or restructuring could help make your situation more manageable.
Remember, this situation, while stressful, is not permanent. With careful planning and disciplined execution, you can turn this around and regain financial stability.
Taking Control of Your Budget When Income Doesn’t Cover Your Expenses
Now, this is where you need to learn to manage your money wisely. You are in control of where you spend your money.
Many truly believe with a higher income all of their financial problems go away. From my research, most people end up with bigger money problems, the same spending habits, and still living paycheck to paycheck even with a higher income.
So, let’s reign in what you can do today to make your budget feasible.
1. Prioritize Essential Bills and Expenses. The key is to identify which expenses are truly essential to your livelihood. All remaining expenses, like entertainment or eating out, should be considered secondary and only met after the primary expenses have been satisfied.
2. Participate in a No Spend Challenge. A No Spend Challenge not only helps you save money rapidly but also makes you cognizant of your spending habits, helps identify non-essential expenses, and guides you towards a minimalist, sustainable lifestyle. Start with a no spend month.
3. Reduce your Housing Expenses. Housing costs can be one of the most significant expenses. Look at ways to downsize, negotiate rent, refinance your mortgage, or get roommates. Or even housesit permanently.
4. Be Cognizant of Bad Spending Habits. Some examples include impulse purchases, expensive convenience, not comparison shopping, or paying too much. By becoming aware of your spending habits and making conscious choices, you can break the cycle of unnecessary spending and start saving money with the penny challenge.
5. Skip the Expensive Coffee Shop. Choosing to forgo your daily coffee shop run can result in surprisingly significant savings. Implementing just this one change could save you over $600 a year!
6. Use Public Transportation to Save Money. The costs of owning a car – gas, maintenance, parking, and insurance – can quickly add up. So, look for public transportation as an alternative or even cycling, carpooling, or walking.
7. Take Advantage of Free or Cheap Entertainment. When living with a low income, entertainment expenses can quickly eat into your budget. Good news for you! There are plenty of things to do that don’t cost money.
8. Cut Back on Grocery Spending. By implementing simple strategies such as meal planning, cooking at home, cutting down on processed food and reducing waste, you can maintain a healthy diet while significantly reducing your grocery bills. Don’t forget to use those discounts and coupons!
9. Stick to Your Shopping List. Preplan your purchases before stepping into a store. This is a powerful tool in curbing those impulse purchases which can inflate your expenses substantially.
10. Start Meal Planning. Meal planning is a practical and economical way to manage your food budget. By planning your meals for the week, you can control your grocery spending and eliminate waste.
11. Stockpile Goods That Will Stay Stocked Up Long Term. Remember, the goal of stockpiling is to save money, not to transform your home into a supermarket. Purchase enough to last a few months and focus on items that you’re certain to utilize. Here are the best foods to buy when broke.
12. Pack Your Own Lunch and Skip Eating Out. With an average meal out costing around $10, you could easily save $200 a month by packing lunch from home. Over a year, that’s $2,400 in savings!
13. Drink Water and Avoid Processed Foods. Shifting dietary habits can be a significant change, but your commitment to a healthier lifestyle can reap both health and financial dividends. It’s an investment in a life of wellness and economic sustainability.
14. Take Advantage of Discounts when Shopping. Remember, the goal of shopping with discounts is to spend less on what you need, not to buy more than you need. So, make sure to use coupons wisely, shop sales, buy off season, and use Cashback apps like Rakuten and BeFrugal.
15. Avoid Impulse Purchases. By avoiding impulse purchases, you give your budget room to breathe and create an opportunity for savings. This makes a significant difference over time, especially when money is tight.
16. Apply for Discounts on Utilities and Services. Many utility companies provide low-income home energy assistance programs. The same is true for internet service. Contact your service providers to check your eligibility.
17. Get Free or Discounted Goods Through Charities. Charities, faith, professional, and local organizations often offer grants for people experiencing financial hardship. Utilizing them can be a lifetime as they help you stretch your budget further and provide necessary support in times of financial struggle. Don’t be afraid or too proud to ask for help when you need it.
18. Get Outside. Reconnecting with nature can provide you with cost-free entertainment and a sense of tranquility that’s hard to find elsewhere.
19. Avoid Unnecessary Expenditure. While each person’s definition of “unnecessary” may differ, the key to budget management is curbing expenditures that don’t add substantial value to your life. A common culprit could be brand-name goods or late fees.
20. Start the Practice of Saving with a Mini Savings Challenge. The Mini-Savings Challenge can pave the way to a habit of saving regularly, even on a tight budget. Essentially, this challenge consists of setting aside a small amount of money each day or week, gradually increasing the amount over time.
21. Show Gratitude. While it may seem less directly related to finance, practicing gratitude is indeed integral to efficient budgeting and financial wellness. Remember, financial success isn’t just about making more money. It’s also about appreciating what you have and recognizing the steps you’re taking towards your goals.
Inciting Additional Income Avenues
Okay, this section is how you take a low income and increase your money. While cutting back spending is helpful, creating more money will help you to reach money success faster. This will take the strain off.
1. Look for Ways to Earn Extra Income
Boosting your income, no matter how minimal the increase, can help cover necessary costs and elevate your financial standing.
Here are some ideas using your current job:
Work Overtime: If possible, consider getting more extra hours at your current job. Earnings from overtime or extra shifts can be significant.
Negotiate a Raise: If you’ve been with a company for a while and demonstrated your worth, it might be time to discuss a raise. Prepare well for this conversation with evidence of your productivity and value.
Every extra dollar earned can be put towards savings, paying down debt, and creating better financial stability.
2. Leverage Side Hustles for Extra Money
Side hustles have become an increasingly popular way to earn extra money online in your spare time. They allow for flexibility and can be a great supplement to your current income.
Start a Side Hustle: These can be a great way to make use of spare time to earn extra cash. This could be anything from driving for a rideshare company, offering freelance services, tutoring, delivering food or groceries to selling homemade goods online.
Sell Unused Items: You probably have items in your home that you no longer need. Selling anything from clothes to electronics or furniture can be a good source of income.
Passive Income: From writing an eBook to renting out a room in your house or investing in stocks, creating passive income streams can provide extra money over time.
Remember to choose a side gig that fits your schedule, interests, and skill set. Not only could it bring in extra money, but it could also turn into a passion project, making the work feel less like a chore.
3. House Sit for Extra Income
House sitting can be a viable option for those looking to generate extra income, especially if you’re flexible with your time and location. It typically involves looking after someone’s home (and sometimes their pets) while they’re away.
Not only is house-sitting a way to earn money, but it can also offer a free place to stay. Hello – you just lowered the biggest expense in your budget. However, remember that taking care of someone else’s home is a huge responsibility, so only take on tasks you’re confident you can handle.
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4. Items You Don’t Need Anymore
Selling items you no longer need or use can both declutter your home and add to your income. It doesn’t just have to be big-ticket items; even small routine household items can yield returns.
While this may be difficult to do, look for items in good condition that you and your family no longer need or use. If you have extra baby stuff, you can rent it on BabyQuip for extra money.
Remember, while selling items won’t provide a consistent income, it can be a great one-time source of extra cash especially if you have these highly popular flipping items in your house.
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5. Pick up a Part-time Job
When you’re on a limited income, picking up a part-time job can be a reliable way to supplement your earnings. You are trading your time for money.
Many of these jobs that pay weekly offer valuable experiences, skills, and possibly even room for growth and advancement. Remember to save and plan for any taxes due as a result of your increased earnings.
Smart Use of Technology in Budgeting
Taking advantage of personal budgeting tools can make managing your finances easier. They can help track expenses, create a budget, and set saving goals. Here are some popular options:
You Need a Budget (YNAB): YNAB helps you create a budget and live within your means, educating you on effective money management along the way.
Simplifi by Quicken: This app crunches the numbers to show how much money you have for day-to-day spending after accounting for bills, goals, and savings.
Empower: This free tool offers a comprehensive financial dashboard that includes budgeting features and investment tracking.
Tiller Money: If you want a more manual approach, you can use Google Sheets or Excel to create a customizable budget spreadsheet.
Remember, the best tool is the one you use consistently. Try a few options to see which one best meets your needs and preferences. Every tool has its pros and cons, but all aim to help you control your finances effectively.
Empower Personal Wealth, LLC (“EPW”) compensates Money Bliss for new leads. Money Bliss is not an investment client of Personal Capital Advisors Corporation or Empower Advisory Group, LLC.
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Access Paychecks Early with Digital Banking Apps
With the rise of digital banking, access to innovative financial tools like early direct deposit has become more accessible, even for those with low incomes. These services can be crucial lifelines between paychecks or in case of emergencies.
Here are a few platforms that offer such services:
Chime: Once you set up direct deposit with Chime, you may get your paycheck up to two days earlier than at a traditional bank.
Current: Current, a mobile bank account, provides users with paychecks up to two days in advance.
Varo: Varo also offers early direct deposit for its users, helping you gain access to your money more quickly.
Clair: Clair’s on-demand pay solution lets you advance a portion of your paycheck before payday. This can be particularly helpful when navigating financial crunches.
It’s important to note that while accessing your paycheck early doesn’t give you extra money, it does provide more flexibility in managing your finances and can help avoid overdraft fees or high-interest loan options in times of need. As with any financial tool, it’s essential to use early paycheck access wisely and not rely on it for regular spending.
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FAQs
Saving money on a low income can seem challenging, but a few strategic changes and smart habits can make it achievable.
Engaging in a money-saving challenge can be a motivating way to encourage disciplined saving, helping you to creatively manage your finances and significantly boost your savings plan over time.
Remember, the key to saving on a low income is to stay consistent, patient, and adaptable in your approach.
Surviving on a low income budget can be challenging, but strategic planning and careful spending can help you manage your finances effectively.
The focus as Dave Ramsey likes to say is on your four walls – food, utilities, shelter, and transportation.
Remember that it’s okay to adjust your budget as you go. Circumstances change, and so should your budget. Review your budget regularly to ensure it’s still working for you and adjust as needed.
Budgeting when you’re broke might seem like an uphill battle.
The key is to make sure you stick to your budget and track your spending consistently. Don’t hesitate to reach out to local charities, government programs, and non-profit organizations for assistance.
Remember, being broke is often a temporary situation, and even small steps towards better budgeting can compound into big changes over time. Try to stay positive and focused on your financial goals.
Now, How do you Survive on a Low Budget?
Surviving on a low income involves careful planning, budgeting, and making the most of available resources. While it may seem challenging, it is indeed possible.
Every small step you take towards frugal living, such as sticking to a budget, reducing unnecessary expenses, or earning extra cash, can lead to considerable savings in the long run.
Remember, it’s also important to invest in yourself – whether that’s asking for a raise at work, learning a new skill, or starting a side hustle.
The journey of living on a low income can be tough, but it also offers an opportunity for creativity and gratitude for the essential things in life. With a positive mindset, some patience, and careful budgeting, you can not only survive but thrive, even on a low income.
The goal isn’t to just get by but to build a financially stable future.
Know someone else that needs this, too? Then, please share!!
Did the post resonate with you?
More importantly, did I answer the questions you have about this topic? Let me know in the comments if I can help in some other way!
Your comments are not just welcomed; they’re an integral part of our community. Let’s continue the conversation and explore how these ideas align with your journey towards Money Bliss.
In your financial life, overdrafting your bank account is bad enough; no one likes to feel as if they’ve run out of money. But being charged an overdraft fee can dig you even deeper into the hole.
That’s why it can make sense to take some simple steps to avoid overdraft fees. You may be able to get a reprieve by contacting your bank or by linking accounts, among other moves.
In this guide, you’ll learn more about overdrafting and the charges involved, plus smart ideas for how to avoid overdraft fees.
What Is an Overdraft Fee?
If you pay out more than is in your bank account, your bank may go ahead and process the payment you’ve initiated, taking your balance into negative territory. They will likely charge you for this privilege (that is, letting you spend more than you have), and that is an overdraft fee.
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How Much Do Overdraft Fees Cost?
Overdraft fees aren’t cheap. The cost can vary somewhat depending on the bank or financial institution, but they generally run around $35.
It’s important to note that the overdraft fee is generally per overdraft. So if you overdraft your account and don’t realize you overdrafted, you might make multiple purchases and incur a fee on each one.
And these fees can add up quickly. At $35 a pop, just three small purchases could set you back over $100.
Some banks may also charge extended overdraft fees (sometimes called continuous or sustained fees) if your account doesn’t go back into positive territory within a few days.
It’s no wonder that Americans paid $7.7 billion in overdraft and the related non-sufficient funds (NSF) fees each year.
However, a bit of hope: Over the last year or two, some banks are beginning to lower their overdraft fees. For instance, Bank of America reduced their fees to $10, and some financial institutions, often online banks, don’t charge any fees for, say, the first $50 of overdraft.
10 Ways to Avoid Overdraft Fees
Next, consider these ways to avoid overdraft fees. These strategies can keep overdraft fees from accumulating — or ever being charged in the first place.
1. Keep an Eye on Your Balances
How often do you monitor your balance typically? It’s a good idea to make a habit of checking your accounts weekly or even more frequently to make sure your balances aren’t too low.
This can be done quickly online, via mobile app, when you take money out of the ATM, and/or by calling the bank and getting an automated update on your account.
2. Maintain a Cushion
One simple way to avoid overdraft fees is to keep a cash cushion in your checking account. A cushion means you have a little more stashed in your account than you typically spend each month in order to cover unexpected or forgotten charges.
This cash cushion can prevent overdraft. You might even add it as an item on your budget to make sure it gets replenished if you use it up.
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3. Set up Balance Alerts
An easy way to help avoid unexpected overdrafts, plus those high overdraft fees, is to set up some automatic alerts.
• One that is particularly helpful is a low balance alert, which means you will be notified (by text, email, or cell phone notification) whenever your balance falls below a certain amount.
You could then immediately transfer money from savings, or hold off on making any purchases until another paycheck comes in.
• Another useful alert you may be able to set up is the overdraft alert. This means you would be notified whenever you overdraft your account.
This alert won’t help you avoid the initial overdraft fee, but it could stop you from continuing to make payments and incurring more overdraft fees.
4. Opt Out of Overdraft Coverage
It is possible to prevent your bank from using the automatic overdraft. You just need to opt out of overdraft coverage.
Customers typically have to “opt-in” to a bank’s overdraft protection program, which many do without thinking much about it when they open their accounts.
This gives the institution permission to clear a transaction even if there is not enough money to cover it in the account. If you’re unsure about whether you’re enrolled in an overdraft program when you opened your account, you can contact your bank to find out whether you have this coverage or not.
There are pros and cons of overdraft coverage. If you have overdraft coverage, you may want to consider opting out. Without overdraft coverage for debit card purchases and ATM withdrawals, you will not be able to overdraft.
Instead, if you try to withdraw more than you have in the account, your charge will simply be declined — no money will be withdrawn from your account, and no fees will be triggered. This may help some people stay more mindful and accountable about their spending.
Keep in mind, though, that opting out of overdraft coverage programs typically does not protect you from fees charged for bounced checks.
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5. Link to Another Account
Next on the list of how to avoid overdraft fees: Connect your accounts.
Your bank or financial institution might offer an overdraft protection service that is different from overdraft coverage. This service, which typically involves signing a contract to set up, will link your checking account to another account at the same institution.
Then, in the event that there’s not enough cash in your checking account to cover a transaction, the needed money would then be transferred from the linked account to cover it.
It’s important to remember, however, that some savings accounts have a limit of six withdrawals per month. Also, there may be a fee involved for the funds transfer, but these charges are typically lower than overdraft fees.
Another perk of overdraft protection is that it can help you avoid the awkwardness of having your transaction denied.
Recommended: Can You Overdraft Your Savings Account?
6. Be Careful About Where You Use Your Debit Card
Here’s another way to avoid incurring overdraft fees:
• You may want to use something other than your debit card to check into a hotel or rent a car. These companies may put a hold on your card equal to or sometimes greater than the full amount of your bill.
In this case, money wouldn’t actually be withdrawn from your account, but it also wouldn’t be available for you to use. If you use your debit card to make another purchase and don’t realize that the hold is tying up your money, you may put yourself at risk for overdrafting.
If you’re planning to use your debit card to book a hotel or rent a car, you might want to check company policies in advance.
• You may also want to avoid using your debit card to make lots of small purchases. These might be harder to keep track of and could add up quickly, making it more difficult for you to know how much money is flowing out of your account.
If you lose track of your spending, this too could put you more at risk for overdrafting.
7. Use Prepaid Debit Cards
Another tactic for avoiding overdraft fees is to do your spending with prepaid debit cards. These cards are often branded with a credit card logo and can be bought in a variety of sums. They come preloaded with that amount of money, and you spend until the cash value is gone. In this way, overdrafting isn’t a possibility. This might help some people stick to their budget.
8. Schedule Payments Carefully
You might also eyeball when payments are due, and see how that dovetails (or doesn’t) with your paycheck schedule. For instance, you might be more likely to overdraft your account if your credit card payment is due a couple of days before your paycheck hits. If that’s the case, you might try contacting your credit card issuer and see if they could move your due date slightly to better accommodate your cash flow. Many companies will do that.
9. Use Mobile Banking Apps
Here’s one more way to avoid overdraft fees: Use a mobile bank app, which can let you see your balance, pending payments, and spending in one click glance at your mobile device.
This can make it easy to eyeball how your money looks and avoid overspending.
10. Consider a Bank With No Overdraft Fees
Some banks are recognizing what a pain point overdraft fees can be for consumers. You may find that some are lowering their charges, and others are actually providing fee-free overdraft coverage. This may be limited to a certain amount (such as covering the first $50 of an overdraft) and may require the customer to get back to a positive balance within a certain period of time (say, until your next direct deposit hits). It can be wise to shop around for this feature; you may find it more often at online vs. traditional banks.
What to Do If You Overdraft
If you overdraw your account, here are some steps to take:
• The best first step is generally to transfer money into the account right away. You might still be able to prevent an overdraft fee.
You may then want to see if your provider has a daily cutoff time or deadline for adding money to an account to correct a negative balance that same day to avoid fees.
Even if you miss the cutoff, transferring money into the account soon can prevent other fees. That’s because leaving a balance negative for several days can sometimes result in an extended overdraft fee.
• If you are charged an overdraft fee, however, that doesn’t automatically mean you are stuck paying it. It doesn’t hurt to negotiate to try to have the fee reimbursed.
You can try to get overdraft fees waived by calling the bank and politely asking if they will remove the charge—if it’s your first offense, you might prevail. You may also want to ask your bank if it has a formal forgiveness program. Some institutions have policies to waive the first fee charged each year or if a customer is experiencing economic hardship.
The Takeaway
Overdrafting is when you try to spend more money from your checking account than you actually have in that account. Banks will often let your charge go through instead of declining it, but then will charge you an overdraft fee that can be around $35. These fees can add up quickly, especially if you don’t realize you overdrafted your account and continue to make purchases.
But there are a few simple ways to avoid hefty overdraft fees, such as opting out of overdraft coverage, setting up an automatic low-balance alert, linking your accounts, keeping a little cushion in your account, or banking where you get a level of no-fee overdraft coverage.
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SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
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