Tag Archives: overdrafts

Getting Financially Fit For 2009 (Part I)

Happy New Year, but it’s pretty depressing that us Canadians just hit the trillion dollar mark in consumer debt and it keeps growing.

New Years resolutions don’t work most of the time which is why fitness clubs are a ghost town in February while everyone is still stuck with an annual membership fee. Most of us just don’t have a “hallelujah moment” the first few days of New Years which has much of a lifespan.

The good news: It’s a new year! It’s a chance to start over, to resolve to do better, to do more, or in the case of your payments and all that interest – to do a lot less.

The bad news? You’re already broke! How’d that happen? Well, we spend more than 120% of our disposable income, half of us have no savings and almost 70% of us don’t even make RRSP contributions. Why? Because every dollar we earn goes to make a long list of lenders really really rich and there’s simply nothing left at the end of the month. Never mind that the average person figures it’ll take two months to pay off their Christmas debts when surveys keep showing it’s actually more like six months.

How do we make it through January with the Christmas and other bills heading our way?
When you’re in a hole – stop digging. In other words, spend less or earn more. Both will have a huge impact in changing your financial situation really quickly.

Annual bills kill your budget, but they’re not a surprise. We know they’re coming – but we haven’t got the money to pay them. Open a savings account that’s not hooked on your ATM card. Then add up what you’ll need for next years’ Christmas bills, your property tax and car or home insurance. Divide it by 12 and put that monthly amount away.

Set yourself a credit limit. Pick a dollar figure below which you’ll pay by debit card or cash. Maybe $20 or $30 bucks – that’s it. Anything below that, you’ll pay with real money instead of running up debts. It’ll become a great habit and will cut down your credit card balance in huge ways.

Pay off one bill. Minimum payments buy you another month – nothing more. It’s treading water. Credit cards and debt are not your friend. They’re financial dream killers and suck money out of your pocket and add a ton of stress to your life and your relationship. Take your smallest bill and put every dollar you can towards it while paying minimum payments on everything else. When it’s gone, take the next smallest and focus only on it. This step-up plan will get you debt free in less than half the time. It’s an entire section of the It’s Your Money book and will become a huge tools for you.

Close your overdraft. I know – it’s like being hooked on drugs. It’s so convenient and always there and you can’t live without it any more. Well, that’s what the banks were counting on. Just a $1,000 overdraft will cost you between $200 and $300 in interest and fees. It’s a one-time pain to cancel the overdraft, but it’s worth it.

A big Heads Up About Our Chequing Accounts

If you’ve got a chequing account here’s something that’ll be of interest. And since that’s almost 99% of us, it’s worth knowing:

A number of U.S. banks have recently purchased some special software to use for their computers. This software is designed to maximize N.S.F. charges on accounts.

Now before we go any further, I have no clue if any Canadian banks have similar software. I have no reason to think they do or to think they wouldn’t be interested in it.

This was a report on the Atlanta based Clark Howard show two weeks ago, and it’s pretty scary. Let me explain: Let’s say you have $500 in your chequing account and there are a number of cheques that you’ve written. You’ve written 6 cheques for $50 each and one big one for $460. That’s a total of $760, so there’s going to be an N.S.F.

Don’t get judgmental right now, because stuff does happen, or banks wouldn’t be making billions in N.S.F. charges. Sometimes it’s carelessness, sometimes it’s as simple as not realizing that a deposit had a hold on it before writing cheques on the money.

Now logic in this example says put through the six small cheques for $50 each and bounce the big one. That’s one N.S.F. fee, now about $42. But this software is designed to get the most service charges out of the account. So the software works out that the $460 cheque should get cleared because then the six cheques for $50 each will all bounce!

So instead of one N.S.F. charge, that U.S. bank can charge six times $42 or $252 in service charges and it’s all legitimate.
In fact, one caller walked through, and documented this type of scenario and had $580 in service charges in one day, where it could have been $70 or so if the order of clearing the cheques had been done in his favour from smallest to largest.

No, this is not a reason to get an overdraft. Quite the opposite, since they just charge a lot of service charges and high rates on a permanent basis. I don’t even care if banks make a ton of profit, I just don’t want them to make it all from your listeners or anyone who uses the tools out of the It’s Your Money book.

(for US IYM: file complaint with the Office of the Controller of the Currency. Occ.gov!!