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What Happens If Your Bank Account Goes Negative?

It’s essential to keep an eye on your bank account balance, but life can easily distract you. An unexpected bill may pop up, or you may have to spend a substantial amount on an expense. So what happens if you accidentally spend more than you have available in your checking account and get a negative balance?

Fees for a Negative Balance

Suppose you overextend your finances and get a negative bank account balance, also known as going red. In that case, you will likely have to pay a bank fee. Depending on the debit card transaction, you may have to pay multiple bank fees.

Overdraft Fees

An overdraft occurs when you spend more money than you have available in your checking account. Most financial institutions charge an overdraft fee for a negative bank balance. The average cost can range anywhere from $25 to $35. 

Your bank may cover the cost of your overdraft item. This means you will have to pay the overdraft fee and then the amount of your negative balance. Suppose you have $100 in your checking account and spend $200. If the overdraft fee is $25, you must pay the bank $125. 

Non-Sufficient Funds (NSF) 

Don’t have enough money in your checking account to cover the cost of transactions? A bank will charge a non-sufficient funds (NSF) fee, also called an insufficient funds fee. The cost of an NSF fee is typically less than an overdraft fee. However, you will have to pay an NSF fee for every expense that you make while your checking account has a negative balance.

The difference between overdraft and non-sufficient funds fees is overdraft protection. If your bank does not cover the cost of a transaction that results in a negative balance, you will need to pay an NSF fee. 

Can a Negative Bank Account Be Sent to Collections?

If you have a negative bank account, the financial institution will issue an overdraft or NSF fee. But what if you cannot afford to recover a negative balance at the moment? The inability to pay overdraft fees or deposit money into a negative bank account can result in severe consequences that further disrupt your life.

Bank Account Closure

If you maintain a negative bank balance, the bank may close your checking or savings account. There are various reasons why a bank may perform an involuntary closure. Having multiple overdrafts or bounced checks, maintaining a negative bank balance, and making too many transfers can result in a closed checking account. 

Credit Bureau Report

While you may be able to open a bank account with bad credit, qualifying is more complicated if you previously received an involuntary closure. If a bank closed your bank account due to a negative bank account, you might have issues opening a checking account in the future.   

The bank can report your negative account balance to ChexSystems. ChexSystems is a bank reporting bureau that monitors bank accounts. A bank may deny your new checking or savings account application based on previous debit card transactions and overdrawn accounts. 

Decreased Credit Score

Banks cannot report your information to the three credit bureaus because they are not creditors. However, a negative bank account may still affect your credit score. Payment history is the most important factor for credit score calculation, as it counts for 35% of your score. If a payment declines due to insufficient funds, that payment will be late. Late payments can quickly decrease your credit and make it harder for you to qualify for housing or loans. 

Bank Account Be Sent to Collections

Suppose you have no money to pay an overdrawn account. In that case, the bank will close your checking or savings account and potentially work with a debt collection agency. The debt collector will attempt to recoup the unpaid debt by calling you and sending debt collection letters. If you fail to pay outstanding bank balances after your debt is sent to collections, the bank can take legal action.

Negative accounts count as unpaid debts, so a bank can take legal action against you. The bank could use legal remedies against you to get enough money to cover the unpaid bank balance. Banks and credit card companies can garnish wages in court. Wage garnishment is a legal procedure that means withholding your income to cover outstanding debt, such as an overdrawn account. 

Steps To Fix Negative Checking or Savings Accounts

If you have a negative account, the best step is to pay the outstanding debt to regain a positive account. If you do not have enough money to fix a negative account, you can take steps to obtain cash quickly. 

  • Sell Items — If you need money quickly, you can hold a yard sale or sign up for a marketing platform, such as eBay, to sell your personal items online.
  • Get a Second Job — Picking up extra work through a side hustle can help you get cash for negative accounts. 
  • Apply for a Loan — You can obtain money in as little as one business day through an online payday advance.
  • Exchange Your Coins — If you have a jar of coins you have been saving, you can exchange those coins for cash at a bank or coin-counting machine.

How To Prevent a Negative Balance and Overdraft Fees

As you can see, there are various negative ramifications if your bank account goes negative. The good news is that you can take steps to prevent making your balance negative and paying overdraft fees. 

Get a Checking Account With No Overdraft Fees

While most banks charge fees for overdrafts, there are account options that do not have overdraft fees. Suppose you accidentally make a purchase that costs more than your available balance. In that case, you will not have to pay a fine for overdrawing your checking or savings account. This type of account can help you save money on additional fees. 

Sign Up for Alerts

It’s always a good idea to check your bank account regularly to ensure you have enough money to cover expenses and bills. But if you prefer, you can simply sign up to receive low-balance alerts! Many banks offer mobile, and email address alerts when your account balance dips below a certain amount. You can set your preferred low balance alert amount and delivery method. 

Sign Up for Overdraft Protection 

Many banks allow customers to opt in to an overdraft protection program. An overdraft program will enable you to link two accounts to prevent overdrafts. Suppose you spend more money than you have available. In that case, money from your linked account will be used to maintain a positive balance. Suppose you link your checking and savings account. If your transaction exceeds your primary account balance by $50, your linked savings account will transfer the necessary amount. 

Disable Automatic Payments

It may be good to disable automatic payments to ensure you have enough money in your account to cover bills. Paying your bills manually online can help you avoid overdraft fees and a negative balance. 

Get the Fee Waived

If you have maintained your bank account well enough, you may be able to get the first overdraft fee waived. Speak with a bank teller and mention how you have upheld a positive account with no issues. There is no guarantee that the fee will be waived, but it’s always good to ask if you have been a valuable customer.   

References:
Can an Overdrawn Bank Account Be Sent to Collections?
Is Your Bank Account in the Red? Here’s What to Do Now
What could happen if you have a negative balance?