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What are the Consequences of a Debit Card Overdraft?

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  • Written By: N. Madison
  • Edited By: Jenn Walker
  • Last Modified Date: 07 September 2016
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When a person has a debit card overdraft, he may face some serious consequences. For starters, he will typically have to pay an overdraft fee to his financial institution. The initial overdraft may also create a negative balance on his account, causing checks written on the account to be returned. If a person is unable to pay his overdraft charges, his financial institution may eventually close his account and provide a negative report to a consumer-reporting agency. Additionally, repeated overdrafts may even make lenders think twice before granting the account holder a loan.

Among the consequences of debit card overdrafts are the fees a person may face. When a bank pays an overdraft, it typically charges the account holder a fee. If the account holder has repeated overdrafts, the fees may add up, and he may have a difficult time paying them.

Another one of the consequences of debit card overdrafts is the possibility that they will cause an account holder to bounce checks. When a financial institution allows an overdraft, it essentially makes a payment for an amount the account holder did not have available and applies an overdraft fee to the account. This often results in a negative balance on the account. If additional transactions and check payments are attempted on the account, they may result in additional overdraft fees as well as returned checked fees charged by the recipients of the checks.

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An individual who has a lot of debit card overdrafts could even have his account closed or experience difficulty opening a new account. For example, if a person has many overdraft fees and has difficulty paying them, his account may have a negative balance for a significant period of time. Eventually, a financial institution may choose to close an account that has been overdrawn for a significant period. The financial institution may also choose to report the problem account to a consumer-reporting agency, making it difficult for the account holder to open an account with a new institution.

Sometimes debit card overdraft consequences can even include those related to buying a home. When a person applies for a mortgage, a lender may request bank statements as part of the application and verification process. Repeated debit card overdraft charges may cause a lender to question the prospective borrower's financial stability or see him as financially irresponsible.

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Reminiscence
Post 2

@AnswerMan, I've been caught out like that, too. I thought I had enough money in the bank to cover a gas purchase, but when I got home and checked the balance online, I was overdrawn. Several checks bounced, but I talked to my bank and they agreed to waive some of the fees. Debit cards are a great convenience, but I say unless you know your actual balance, be careful.

AnswerMan
Post 1

One thing that bothers me about debit cards is that a bank doesn't necessarily have to warn you if a sales transaction will pull your account balance below zero. I have made small purchases with a debit card, not knowing that a large check has been processed by the bank. My available balance wasn't what I thought it was, and that $8 purchase threw my account into overdraft status. I wish there was a way for the debit card sale to be denied if the bank's computer recognizes a potential problem.

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