How Can Your Credit Card Protect You from Check Overspending?
Sometimes it makes sense to stay with a bank for a long time, and use as many of its services as possible. You may have set up a saving or a checking account with a bank and it will only be to your advantage to apply for a credit card at this same institution.
Show yourself a disciplined and responsible customer and you gain certain creditworthiness in the eyes of your bank. And to keep you as a client, they are sure to offer additional programs or incentives such as interest rate reduction or better quality fraud protection.
But what can be better when a bank offers you protection from your own bad spending habits?
Yes, you may know from your own bitter experience that using a credit card or debit one, it's very easy to reach the so-called "red zone", in other words, overspend and exceed the limit. In case with a checking account, your below the zero balance cause overdraft fees notably hurting your finances.
How can you protect yourself from those high-sky fees and reduce money loss while you are setting things right? More sophisticated customers are already aware of a little industry trick: if you open a checking account with a bank and then apply for credit card with it, you may count on a guaranteed overdraft protection.
How is the trick processed? Imagine you have miscalculated or cashed the check too soon - you end up charged with a fee from $20 to $35 each transaction. Normally, most customers feel outrage enormous fees and it's natural they are seeking ways to avoid them.
Recently, one of the most effective ways to cover the overdraft fees has been linking your checking account to a low interest rates credit card with the same credit card company or bank. This way, you use the credit line to back up your checking account. Each time your checking account balance jumps below zero, the money from the credit card will be transferred into checking.
But you shouldn't think it all is so easy and free of charge. The point is that the overdraft amount is treated as cash advance on your plastic and you will be normally charged for it. So, if you use credit card to cover overdraft fees, be ready to pay cash advance fee and interest charges like you would do, making a regular cash advance on one of your credit cards.
To make the most profit of this operation, financial experts advise customers to make a reasonable fees and low interest credit card application. As the overdraft is regarded as a cash advance, the APR is the same as the credit card and usually, it is much lower than the overdraft interest itself.
The interest rates of the credit line will determine the overall cost of covering the overdraft fees. As a rule, the transaction incurs 2% fee and accumulates interest from day one. It appears that this operation is notably less expensive than if you were to pay the overdraft fees from your pocket.
Now, not every institution can offer this option and you will probably have to shop around to find a bank with the overdraft protection. Also, beware that the service is not automatic and you'll have to notify your bank and enroll in the program which is free. The only requirement is that you should have a checking account and credit card from the same institution.