Dangers of Debt: Overdraft Fees

The 'gotcha' in overdraft fees

Weíve all cut it close in our checking accounts. You check the balance, figure the $50 is enough for that soy latte, used textbook, and some groceries. So you make the purchases. But the next day, your account shows youíre $105 overdrawn.

How did that happen? You forgot you bought $45 in online concert tickets the day before, and the tickets didnít register yet in your account. But even though you didnít have enough for the book or the coffee or the groceries, the bank went ahead and covered the new purchases anyway. And for that convenience, the bank charged you a $35 overdraft loan fee each time you swiped your card.

Young people are the hardest hit by overdraft fees because they tend to use debit cards for much smaller transactions—coffee, printer paper, parking. So that $1.50 cup of coffee can suddenly turn into a $36.50 unexpected extravagance with overdraft fees.

As the below chart shows, for every $1 you "borrow" through overdraft, you pay more than $3 back. That is 300 percent interest on a loan you didn't ask for—and likely canít afford.