Financial mistakes happen – and bouncing a (physical or online) check is one that’s really frustrating.
Bouncing happens when you send off a check – to your credit card provider, your local utility company, your auto lender – but don’t have enough money in the bank to cover the payment amount. When your creditor tries to cash the check, there aren’t enough dollars available in your account; the check bounces.
Bouncing a check is a hassle and can lead to a string of problems. And, yes, making this misstep can be embarrassing. Fortunately, you can move on after bouncing – in a way that minimizes any future ramifications. Let’s also discuss how to keep from repeating this misstep.
What Happens When You Bounce
Bouncing a check can often start an aggravating chain reaction of financial hurt. First, your bank will likely charge you what is known as a nonsufficient funds fee. This fee usually ranges between $25 to $35.
Then there’s the penalty that your creditor can levy: The person or company you meant to pay can charge you a returned-check fee. That fee varies, but you can expect to pay from $20 to $40 in most cases. You might also get charged a late fee from your creditor if your bounced check means your payment is late.
You could run into even more problems if you don’t have enough money in your bank account to cover these fees.
The lesson here? Take precautions to avoid bouncing a check.
Phil Risher, founder of YoungAdultSurvivalGuide.com, has never bounced a check. But when he was 16 years old, he did something similar: He overdrafted his bank account, setting the total amount of money in his checking account to a negative dollar amount. This shocked Risher into making a change, so he wrote his first budget and has relied on household budgets ever since.
Risher says that the surest way to avoid bouncing checks – or overdrafting an account – is to create a household budget that shows exactly how much money comes into your home each month and how much you can spend each month. Following a budget will help you avoid writing a check you can’t cover.
”I made it my mission to manage my money properly,” Risher said. ”The tool I uncovered was the budget. This completely transformed my life. The main way I would recommend people stay in good standing is to have a budget and only spend what you have.”
If you try to spend more than what you have in your account, life can get messy. Your creditors can pursue legal action against you if you don’t pay up; though, state rules on how much time you have before this happens vary. They can also have a collections agency contact you until you pay. Paying 30+ days late on bills such as your credit card, auto loan, student loan or mortgage will send your credit score tumbling. In extreme cases, you could lose your home or vehicle.
You’ll also have to pay any nonsufficient fund fees to your bank.
But what if you’ve already bounced a check? There’s only so much you can do to minimize the damage. First, immediately contact the company or individual to which you sent your check. Let them know you’re aware of your mistake and that you’d like to make amends.
Making amends, of course, might not be easy. If you now have the money in your account, pay what you owe immediately, including any returned-check fees. If you don’t have enough to pay, you can ask to repay what you owe – again, including your fees – through an installment plan in which you pay what you can afford each month. Creditors are under no obligation to put you on such a plan, but many might if it will increase the odds of them getting paid.
Now that you’ve recovered, let’s discuss ways to avoid this happening again. You should regularly balance your checkbook so that you know how much money is in it. With online banking, balancing a checkbook is easier than ever; you know exactly when your outstanding get cashed.
You might also invest in overdraft protection. Many banks offer this service in which they’ll transfer funds from a linked account – such as your savings account – to automatically cover your checking account balance from falling below zero dollars. You’ll likely have to pay for this service, but if you routinely drain the funds in your checking account, this investment might make sense for you.
David Bakke, an Atlanta-area personal finance writer and author of the finance book “Don’t Be a Mule,” said that by taking a more proactive approach to their checking accounts, consumers can slash the chances of ever bouncing a check. It’s why Bakke always has more money in his checking account than is shown on his personal ledger.
“The best way to keep from bouncing a check is to keep an extra amount of money in your bank account that is not reflected on your check register where you manage your account,” Bakke said. “That way, if you go over the amount on your register, the check won’t bounce.”
What are some ways you keep your financials in order? Let us know in the comments below!
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