Can a debit card go to a negative balance?
Debit cards cannot go to a negative balance, but the checking account associated with the card can. A negative balance is caused by an overdraft and may result in fees. Common reasons your balance may go negative include bank administration fees, payments being honored, and fund holds.
Debit cards are supposed to be linked to available funds in a checking account. They are not a way to borrow cash.
Because of this, a lot of people can end up surprised if their debit card ends up displaying a negative balance.
Luckily for you, I’ll show you what can cause your debit card to have a negative balance. More importantly, I’ll share the consequences and how to fix a negative balance. I’ll help you get back to a positive balance in no time!
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What Can Cause a Debit Card To Have a Negative Balance?
Debit cards can have a negative balance when the bank chooses to honor a payment even when you do not have the funds available. Think of it as a temporary, completely unapproved loan. Account balances often go negative for pre-arranged payments, administration fees, cashed checks, or fund holds.
Not all banks will let you overdraft your account on purpose. Some checking accounts come with overdraft protection, making it so you can’t have a negative balance. Instead, the charge would be declined. Other banks may charge a fee if you want overdraft protection on your account.
Administration Fees of Bank Account
Some bank accounts will have administration fees. This means fees you have to pay to hold a bank account with the company. Some banks may charge you to have a debit card with them.
Banks will almost always take administration fees out of your account, even when there is not enough cash to cover them. These fees will normally appear at the end of the month. So, if your debit card has a negative balance at the end of a month, or perhaps the start of a new one, then this is probably the reason.
Pre-Arranged Payments Being Honored
Some individuals pay bills directly from their bank account. The bank may still opt to honor these payments even when there is no cash available.
The chances are that not all payments will be honored. If a payment, for instance, could potentially send you hundreds of dollars into debt, the bank won’t honor it. Banks are more willing to honor smaller payments than larger ones.
Honoring a Check
If you have written a check and your bank balance dwindles before the check is cashed, then the bank may still choose to honor it. Although, once again, this will be dependent on how much debt the check could potentially send you into. Again, not all checks will be honored.
For example, you write a $100 check to your friend while you have $200 in your checking account. Your friend doesn’t cash the check immediately.
In the meantime, you go about your normal day-to-day routine. You spend $150 on groceries, because you’re getting paid tomorrow. However, your friend cashes the check the same day, causing you to have a balance of -$50.
A Hold was Placed on Your Funds
Some merchants will place a hold on your funds to verify you have sufficient funds for the transaction. In some cases, a hold that would cause an overdraft would be declined. However, it is possible that a hold on your funds could cause you to overdraft.
One of the most common places that place a hold on your funds are gas stations. Typically, gas stations will place a hold between $50 and $100.
For example, you have $75 in your checking account and you need gas. You know your tank will only require $60 to fill up. However, the gas station has a policy of holding $100 for every fill up.
Using your debit card at a gas pump would cause your account balance to temporarily go to -$25.
Your Balance Dropped Below the Account Minimum
In some cases, banks will have an account minimum deposit to keep your account open. Going below this account minimum may result in an additional fee, which triggers an overdraft. Triggering an overdraft may result in additional fees.
For example, your bank may have an account minimum balance of $5. You decide to pay extra on your mortgage, leaving $1 in the account. You have now dropped below the account minimum balance and are assessed a $10 fee, bringing your balance to -$9.
In some cases, you may be assessed another fee for overdrafting your account. Assuming a $15 overdraft fee, your account balance now drops to -$24.
Account minimum balances can catch a lot of people off guard. Most individuals assume they won’t have any issues as long as their account balance stays positive. However, the banks will often not disclose the account minimum requirements or it’s buried in the fine print.
Therefore, it’s important to understand if your account has an account minimum. A bank teller or customer service representative should be able to help you in your case.
You Had a Pre-Arranged Overdraft
Some people have a pre-arranged overdraft on their checking accounts. If you have pre-arranged overdrafts, your account can drop below zero.
Anything we mentioned before can send your account into the negative. The main difference is that, with an arranged overdraft, the bank will likely approve all payments. You will also be dealing with lower fees.
You would most likely know if a pre-arranged overdraft applied to you. Most banks would require you to sign up for the ability to have pre-arranged overdrafts.
What Are The Consequences Of Having a Debit Card With a Negative Balance?
Arranged overdrafts should come with minimal to no consequences. Unarranged overdrafts may result in fees, account closure, credit report issues, and debt collection. In most cases, you don’t have to worry about the consequences if you resolve the overdraft in a timely manner.
First time overdrafters may be able to resolve the issue without any problem. Most banks are understanding of your situation. The best course of action is to go to your local branch and talk to someone in person.
The most immediate consequence will be some fees on your account. Banks are free to set their own fees. Chances are, it may be between $10 to $20. The bank may also charge you interest on any cash you have ‘borrowed.’
Closure of your account
The bank will give you a small amount of time to pay back the money that you owe them. If you continue to ignore the payment request, you may have to deal with the closure of your account.
Credit report issues
If the account remains in debt too long, then the bank may tell the credit reporting agencies.
They will likely give you a little bit of time before this happens.
Credit report issues are serious. They will impact you for years, and they may restrict your chances of borrowing or obtaining certain jobs.
Eventually, the bank will send the debt collectors in. This is when you know that the bank is serious about getting their cashback.
Thankfully, it normally takes several months before your bank gets to this point. You will have ample opportunity to pay the cashback. Remember, most banks will never send you too far into the negative balance anyway.
How Do You Fix a Debit Card With a Negative Balance?
The best way to fix your negative balance is to contact your bank to understand why the account went negative. You will need to deposit enough money to meet your bank’s account minimums and to pay overdraft fees. You’ll also need to create a plan so you avoid overdrafting in the future.
First, you will want to put some cash into your account. The negative balance is unlikely to be more than $100. In most cases, it will be substantially less than this. The quicker you pay the money back, the fewer issues you will be dealing with.
If this is your first time holding a negative balance on your debit card, we suggest that you give your bank a call. In many cases, they will be able to get rid of the unarranged overdraft fees.
Banks are more willing to waive overdraft fees for first time offenders. Repeat overdrafts will make the bank less helpful.
Finally, you will probably want to prevent this from happening in the future. We suggest that you log in to your online bank account and find the transactions that caused you to overdraw.
Do you need to create a budget, adjust your autopays, or create an emergency fund? Identify what steps you need to take to avoid overdrafting in the future.
As you can see, there are many reasons as to why your checking account can have a negative balance. Your balance can go negative if:
- Administration fees are charged to your bank account
- Auto Payment occurs (e.g. bill pay)
- A check was cashed
- A hold was placed on your funds
- You were charged a fee for dropping below the account minimum balance
- You had a pre-arranged overdraft
There are consequences associated with overdrafting your account. You will be assessed an overdraft fee. Failure to pay back your negative balance may result in further action including account closure, lower credit score, or debt collections.
First time overdrafters may be able to resolve the issue by talking to their bank. Repeat overdrafters will find it harder to get the bank to waive the overdraft fees.
Otherwise, you can resolve the overdraft fees by depositing enough cash in your account to meet the account minimum balance and pay back fees.
You’ll need a plan moving forward to avoid future overdrafts. In most cases, proper budgeting can reduce the chances of overdrafts.
Contact your bank if you have any specific questions about your overdraft.
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