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Why even bother with overdraft protection?

Most consumers are relatively familiar with the concept of overdraft protection, and many have experienced firsthand the fees that may be incurred when one spends more than is in their checking account. But is overdraft protection helping or harming consumers?

In early March of 2011, Bank of America made a shocking announcement that it was doing away with overdraft fees for debt card purchases. What does this means for the bank's checking account customers? If they do not have enough money to cover a purchase, one of two things will happen: they will be unable to complete the transaction, or the transaction will go through overdraft fee-free.

According to new "opt-in" rules set forth by the Federal Reserve, which went into effect on July 1, 2010, banks are required to allow debit card customers to opt-in to overdraft fees, rather than automatically enrolling cardholders into programs that will result in $20-30 charges for purchases made when there are insufficient funds in the account. Customers who choose to opt-in will be charged the fees; customers who do not opt-in will be unable to complete their purchases.

Bank of America seems to have skirted the issue entirely, instead eliminating overdraft protection entirely. The main question now seems to be: should consumers opt-in to overdraft protection if offered by their bank? Or should they take Bank of America's stance and avoid spending money they don't have?

Overdraft protection, when used in emergency situations, may prove invaluable for a person whose car has broken down, who is in need of medical care or needs to make a crucial purchase that simply cannot wait until their next payday. Using overdraft protection on a regular basis, however, may only harm one's financial situation, particularly when it kicks in on minor purchases. What if you made a purchase of $15 to $20 without enough money in your account to cover it? Let's say you're charged a $25 overdraft fee. There are a number of other ways to cover purchases without being charged an arm and a leg. Keep close tabs on your account balance to avoid overdrawing your account in the first place. Take a look at what you're purchasing. If you don't really need it, maybe it can wait until you have the money to pay for it. If you must make a purchase and you don't have enough in your bank account, you have the option of linking your bank account to a credit card, personal line of credit or home equity line of credit. These all offer far cheaper options than overdraft fees.

Helping debtors is the primary purpose of the experienced team of attorneys at Jacoby & Jacoby. Located in Long Island, the firm represents debtors throughout the area in bankruptcy proceedings and also offers counsel in the face of foreclosure, collection lawsuits, loan modification and more.

Contact a Long Island bankruptcy attorney at the firm today to talk about your financial situation and what solutions may be available to you.


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