Breaking the Courtesy Pay Cycle
How many of you are stuck in a Courtesy Pay / Overdraft Protection cycle? It’s time to break up with courtesy pay.
How many of you are stuck in a Courtesy Pay / Overdraft Protection cycle? It’s time to break up with courtesy pay.
What is Courtesy Pay? It’s a service offered where an account holder can spend beyond what they have in their account. It can help the account holder avoid declined transactions, bounced checks and late fees.
There is often a limit for how far you can overdraw an account, for instance, $500 but it can vary from place to place. You also have a set amount of time to bring your account back to positive, often within 30 days, or you risk it being suspended.
Doesn’t sound so bad on the surface right? The problem is, every time you go over, you are charged a fee. The fee depends on the financial institution and can be as much as $50. So, that’s $50 per transaction plus the amount your account was short.
The reality is, often overdrawing your account is an accident. It can be as simple as a math error in your bookkeeping. And it happens to even the most attentive person. It’s human. And the courtesy pay protection takes care of it until you get to the credit union and clear it up. The truth is, this is what it’s here for.
Again, the struggle becomes when there are multiple transactions and those fees start to add up.
The Consumer financial Protection Bureau says that the average American spends over $250 a year on overdraft fees. They also said that 17% of US households pay at least one overdraft fee a year.
Once in a while is fine and expected. The concern is when it’s more than that and it’s basically being used as part of your budget.
There are people that live in overdraft every month. They’ve even figured out how to reduce their fees. For example, they will withdraw cash right up to their overdraft limit and then shop with the cash so they only incur one fee.
But, if you have the forethought and planning ability to figure that out, then why not put those planning skills to use creating a solid budget plan? The money you would save in fees may be enough to actually get you back on track financially. The key to breaking this cycle is setting a healthy budget and then sticking to it.
This will not happen over-night as it takes time to adjust to new spending habits.
The first step is track your income and spending. Here you must take a realistic look at what money you have coming in and what you are spending. You want to look at all avenues of income and be honest about what you spend.
It can be hard to make cuts to our spending and many of us feel like we have done all we can but we are still struggling. Perhaps consider visiting a financial counselor or a similar advisor to help you take a look with fresh eyes.
You may see that you spend $5 a day on coffee and think that isn’t very much, but if you look at your annual spending you see that you spend $1000 in a year on coffee. Making the small adjustment in the coffee spending, will make a big difference in the bigger picture. Several small adjustments can truly change your financial standing.
Many of us think that if we give something up to make our finances better, that it’s gone forever and that’s often not true.
As you adjust and do things like pay down debt, the money you have left each month will improve. As you learn and find yourself managing your money in a responsible way, you can begin to perhaps add things back. Or even add them in a better way.
You may even find that you enjoy the creativity and change. For instance, if you learn to do your own nails, this is a great creative outlet. It could even lead to get togethers with friends where you have a nail party. Sometimes a change can lead you to something better in more ways than one.
If you have cut all you can and there still isn’t enough it may be time to look at other income options.
If it is still difficult then bigger choices may need to be made. Perhaps a smaller house or car or maybe a car that is less insurance. There are many ways to downsize and change those expenses as well if necessary.
The good news is, as you begin to pay those debts and get out of this costly cycle, you will see your finances improve. That can be a great boost to your mental health as well.
It will take discipline and patience and you have to truly be willing to make the changes necessary to make real change. But the peace of mind and stability that comes with ending this cycle and managing your money in a responsible way, makes it all worth it.
Remember there are apps to help tracking and budgeting or you can even go old school and do a spreadsheet or just good old-fashioned pen and paper. And always make sure your entries and your math are correct.
You are not alone in this journey. We are more than happy to sit with you and help you create a plan that works for you. Feel free to reach out to either of our branches any time! We truly mean it when we say that your financial success is important to us and we want to do what we can to get you there!