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10 Practical Tips To Lower Your Banking Costs

10 Practical Tips To Lower Your Banking Costs

Recently, I was going over the details of my budget with a friend. When I got to the estimated expenses, he seemed to have a puzzled look on his face and asked me if I had forgotten to include banking costs. I was surprised by this question, but not as surprised as he was by my answer: “I don’t really have any banking expenses.”

“What about service charges, accidental overdrafts, minimum account balances etc.?” he asked. I shrugged. I don’t pay my bank to hold my money, they pay me for the privilege. Here’s how:

1. Set up overdraft protection … now!

Accidents happen. No one usually intends to overdraw their bank account, but sometimes a debit transaction comes through before a check clears and there you are with one or several charges applied to your already hurting bank account.

The first thing you should do after setting up a bank account is inquire about available overdraft protection. Sometimes referred to as cash reserve checking, this is a line of credit that the bank extends to its customers that kicks in when your debits exceed the balance in your account. Basically, you are pre-approved for a loan that is used to cover your negative balance.

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While this protection virtually eliminates overdraft fees, there are two small caveats. Firstly, you must be approved for such a line of credit, which is dependent on several factors including your credit score and history with the bank. Secondly, banks are not in the business of loaning out money for free, you will be charged interest on the overdrawn amount, though this is almost always going to be less than the fees that would be applied without overdraft protection.

2. Establish a good relationship with the tellers at your bank.

We often tend to view banks as large, faceless megacorporations, and save for the local credit unions, most of them are. That said, the people who work at your local branch are just that, people, and they often possess more power to help you out than you may realize. Knowing your teller by name, asking them about their family and what they are doing this weekend are, other than being generally polite things to do, great ways to ensure that you are treated fairly by your bank. I cannot tell you how many times my teller has pushed a deposit through to clear immediately or removed a fee for me: services that I doubt would have ever been extended to someone they didn’t know.

3. Prepare ahead for traveling abroad.

Oftentimes travelers run into additional banking fees and inconveniences, simply because they didn’t plan ahead. Be sure to tell your bank that you are traveling. Will you need to use ATMs while you are abroad? Check to see if your bank has any arrangements with banks in the countries to which you are traveling. If they do, using these banks can significantly cut down on fees and you can be assured that your money will be readily available when away from home. If you travel frequently, consider opening a Schwab Bank High Yield Investor Checking Account, which automatically reimburses all foreign ATM fees.

4. Use online banking but don’t rely on it.

Online banking is a godsend for most people. It allows you to keep an eye on your balance, transfer money from one account to another, and more. Many banks allow you configure alerts so that you are notified via email or text message when your balance drops below a certain threshold. Get to know what your online banking offers and leverage these tools to stay in control of your account. While this can be an extremely useful tool, bear in mind that it does not replace the need to balance your checkbook.

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5. Balance your check book.

Every time you swipe your debit card or write out a check, add the transaction to your ledger immediately. For all intents and purposes, view that money as no longer being in your account. If you get into this habit and quit relying on the available balance reported by your online banking, you will save yourself a lot of trouble, fees and embarrassment.

Remember that transactions can often take days to show up on your online ledger. Always know what it really in your account. Maintaining a balanced check book will also enable you to more easily spot potential bank errors, such as double charges. While there are a wide variety of apps available to make this age-old act easier, I personally prefer Toshl, which is available on all the major mobile platforms and can also be used to set up budgets and generate helpful graphs about your spending habits.

6. Shop around for better accounts.

Before looking elsewhere, go into your bank and ask to talk to someone about your account. Let them know that you are concerned about avoiding fees and would like to know what types of accounts are available. Answer any questions they ask you with complete honesty. Do not say that you can maintain a higher minimum balance than you realistically can. Oftentimes, you can forgo interest (which is often quite meager to begin with) for a totally free account with no restrictions. After a simple five-minute conversation with my banker, I was switched into an account that is typically just for college students (which I am not) that offered some built-in overdraft forgiveness with no fees and no minimum balance. While your mileage may vary, it never hurts to see what is available. If it seems that your bank has nothing to offer, look elsewhere.

7. Be careful when writing checks.

Checks can be tricky as you never know when their recipient will cash them and if there isn’t enough money in our account when they do, they will bounce, which is costly and very embarrassing. Bounce enough checks around town and you might even find yourself in jail. If we are following tip #5 and balancing our check book, this should never happen. That said, sometimes we make mistakes. So, if you do bounce a check, and you happen to catch it right away (it shows up in your online banking, but the transaction is still “pending”), then immediately deposit enough funds in your account to cover the check and call your bank. There is a chance that they might be willing to manually approve the transaction and prevent the check from bouncing.

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8. Read every notice that your bank mails you.

Regulations require that your bank notify you of any new fees. Be sure to open and read every piece of mail that your bank sends you. If they are introducing a new fee of some type, contact them immediately and see what can be done to avoid being charged. Often they are just hoping that you won’t notice. Stay on top of things and you could avoid increasing fees.

9. Consider switching to a credit union.

If you are unable to get your banking costs under control with a typical bank, try a credit union. Credit unions are member owned and operated and as such, are service-driven as opposed to profit-driven organizations, and because of this they tend to offer more favorable rates and additional services.

10. Don’t be afraid to mix and match your banks.

If one bank offers a great free checking account and another has really useful features for its business accounts, don’t be afraid to mix and match. Find the accounts that suit your needs, regardless of where they are offered.

 

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With a little effort, it is possible to mitigate most banking costs, even those associated with mistakes made on your own part. For a look into some more money mistakes worth avoiding, check out 11 Money Mistakes You Don’t Realize You’re Making.

Featured photo credit: Money Bills Calculator Save Savings Taxes/jarmoluk via pixabay.com

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Last Updated on July 10, 2020

The Definitive Guide to Get out of Debt Fast (and Forever)

The Definitive Guide to Get out of Debt Fast (and Forever)

Debt can feel crushing, like a weight that is always weighing you down. Looking at those numbers, it can feel as if you’ll never get out from under it. However, if you really want to learn how to get out of debt, it is possible with a great deal of focus and self-control.

Getting out of debt isn’t impossible. Like any big goal, all that it takes is an action plan to identify where you are and creating a plan to zero out your debt.

Identifying All of Your Debts

The first part of paying off your debt is getting a complete picture of what you owe. When you have everything written out in front of you, it makes it much easier to create an action plan. Depending on how much you owe, it might also help you realize it’s not as bad you might have originally thought.

Here’s how you can get started identifying your debts:

1. Own Your Debt

Before you start identifying all of your debts, take a moment to process that you have debt but want to get out of it.

Forgive yourself for any past mistakes, missed payments, or overspending. It might be painful to accept how much debt you have at first, but you must own it.

2. Make a Debt Tracker

It’s astonishing how few people ever created a tracker to understand their total debts. Most likely, it comes from not wanting to accept the guilt of having debt, but, if avoided, it can make it nearly impossible to get out of debt.

Open up a new Google or Microsoft Excel sheet and list out all of your debts. Start with the name of the creditor, interest rates, total balance, loan term length (if any), and the minimum amount due each payment. This will include student loans, credit cards, and any other type of debt owed.

3. Get Your Debt Number

Once you’ve made your debt tracker and taken the other steps, identify your total payoff number. This is crucial, as you will have a starting point and a clear goal that you are trying to achieve.

Prioritizing Your Debts

All debt is not created equal. It’s imperative to understand that there are different types of debt.

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1. Understand Bad and Good Debts

Bad debts are usually paying for things you want instead of always need. While there might be some emergencies that max out your credit cards, often times it’s excessive spending[1].

There are three main types of bad debt:

  • Credit Card Debt: The average American household owes over $16,000 in credit card debt!
  • Auto Loan Debt: According to CNBC , the average auto loan in the US is $30,032!
  • Consumer Loan Debt: Consumer loan debt isn’t as common as credit card and auto loan debt, but it’s still considered bad as interest rates are usually between 10-28%.

Good debt is identified as investments in your future. Here are three common types of good debt:

  • Student Loan Debt
  • Mortgage Loan
  • Business Loans

2. Decide Which Debt to Pay off First

Once you know each type of debt and their interest rates, you can begin to pay off debt quickly.

Focus on paying off bad debt first, regardless of if it is a credit card or auto loan. Start by paying off the loan with the highest interest rate first.

If you have several credit cards with different interest rates, you want to focus on the one with a higher APR. You will actually save more money by eliminating the card with the highest interest rate.

3. Don’t Pay the Minimum Amount

Paying the minimum amount digs you into a hole as interest rates will offset your payment. Even a small amount more than the minimum can help you pay off debt much faster.

Removing Obstacles to Pay off Debt Quickly

Creating a debt tracker and prioritizing a plan is simple, but avoiding temptation can be difficult.

1. Set a Reminder to Track Your Debt

“If you can’t measure it you can’t manage it.” -Peter Drucker

It’s so important to track your debt to ensure that you get it paid off quickly. Similar to working out and measuring your results, you need to track your debt constantly. Start with a weekly reminder, where you sign on and log your updated number. Did you increase, decrease, or stay the same?

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Regularly tracking your student loan balance can be incredibly motivating, as well. You will get a huge confidence boost each time you see your total debt amount decreases.

Set weekly and monthly goals so you can have short term wins and keep the momentum going.

2. Hide Your Credit Cards

If your biggest debt is credit cards, you need to eliminate temptation and remove them from your wallet.

Some people have gone to extreme measures by freezing their credit cards. Why? This would create an ice block around your card, which would require you to chip away at it slowly. This will give you time to think if it’s the best idea to buy that thing you’re about to buy.

3. Automate Everything

Willpower can be a huge downfall to paying off your debt. By automating your bills each month, you will ensure that willpower isn’t involved.

4. Plan Ahead

Getting out of debt will require some sacrifices, but with enough planning, you can make it work.

For example, if you know that you have a friend’s birthday or family dinner coming up, plan ahead for the costs. Whether you need to cut back on spending the week before, pick up a side job, or meet them after dinner, do what is needed.

5. Live Cheaply

The only way to get out of debt is to make some sacrifices on your spending habits. Find ways to save money each month so you can apply that amount to your outstanding debts. Here are some ways to save money each month:

  • Live with roommates
  • Cook dinners and prepare lunches for work instead of eating out
  • Cut cable and choose Netflix or Amazon Prime
  • Take public transit or bike to work

Finding the Lowest Interest Rates

The higher your interest rates, the harder (and longer) it will take you to pay off any debt.

If possible, you want to find ways to lower your interest rates to help get out of debt quickly. Here’s how you can get started:

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1. Maintain a High Credit Score

Your credit score will have a large impact on your ability to refinance your loans and receive a lower interest rate. If you have a low credit score, it’s unlikely you will be able to refinance your loans. Use these credit tips to increase and maintain an excellent score:

  • Never miss a payment
  • Don’t exceed 30% of your credit limit
  • Don’t sign up for more than one card at once
  • Limit hard inquires, like auto-loans and new credit cards
  • Monitor frequently with free credit-tracking software

2. Find Balance Transfer Offers

Start by opening a free account on credit.com. Credit.com offers you the chance to open a free account and see what type of balance transfer offers you can receive. Some of your existing credit cards might already have 0% or lower APR balance transfer offers available.

Contact each of your credit card providers to ask about lowering your rate for a one-time balance transfer offer[2].

If you do take advantage of this option, make sure that you use a balance transfer and not a cash advance. Cash advances have a ton of high interest fees (15-25%, depending on your credit card) and will only compound your debt problem.

How to Get Rid of Debt Forever

Setting up a plan, removing temptations, and getting the lowest interest rates is the first step to get out of debt.

1. Keep Monitoring and Adjusting

Once you have a plan, don’t get comfortable. Track your debt payoff plan and make the necessary adjustments when needed.

Monitor your credit scores with a free site like CreditKarma. The higher your credit score climbs, the more likely you will be to secure a new, lower-interest loan.

2. Earn More Money

There are only so many ways to save money. Instead of clipping another coupon or making sacrifices for your morning coffee, find ways to earn more money!

Think about it…it is much easier to find ways to earn an extra $1,000 per month than find $1,000 to cut from your budget.

Here are some examples of ways to earn more money:

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Talk to Your Boss

Have a conversation with your boss about current salary and/or commission rates. If you’re not satisfied or want a change, don’t be afraid to look around at other positions. Some of them might even have a student loan debt reimbursement plan!

Start a Side Hustle

This could be coaching students on the weekends, driving for Uber, or taking paid online surveys. There are tons of ways to make money outside your 9-5. Now that you have a clear plan to pay off your debts, you’ll be more motivated than ever to figure out creative new ways to earn money.

Build an Online Business

There are so many websites and blogs that earn money from ads, affiliates, and other online products. Find your niche and get started.

3. Celebrate Your Wins

As you progress in your debt payoff journey, don’t forget to celebrate your wins. You need to always reward yourself for the hard work and discipline that is required to get out of debt.

While you shouldn’t celebrate so big that it increases debt, make sure to factor in little rewards to keep you motivated.

4. Set New Financial Goals

Eventually, with a plan and these steps, you can rid yourself of your debt. Once you do, make sure to celebrate your monumental achievement, but don’t stop there.

Now, you can focus on acquiring wealth and increasing your net worth. Set new financial goals so you have a new target to aim toward. Here’s how to set financial goals and actually meet them.

These could be anything now that you are debt free! Think about where you want to travel, buying your first home, or saving for your future retirement. Just like before, make sure that your goals are specific, measurable, and achievable.

Conclusion

Congrats, you can now set a plan in motion to finally pay off your debt quickly (and hopefully forever)!

Remember, if you want to get out of debt quickly, it’s not always easy. Just like any big goal, there will be sacrifices, challenges, and problems to overcome.

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Featured photo credit: Pepi Stojanovski via unsplash.com

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