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Your Checkbook

Managing Your Checkbook

Do you know how to balance your checkbook? Do you have overdraft protection on your checking account or a debit card? Many consumers fail to properly manage their finances, and they do not understand the consequences of a mismanaged checking account and the potential cost it can involve.

When you balance your checkbook it requires that you keep track of all transactions you have made through your checking account, including direct deposits and debit card purchases. Most ATMs will give you a receipt with your withdrawal, but this balance may not include outstanding checks that have not cleared your account. Once you get home make sure you put all transaction that you did into your checkbook.

To keep an accurate balance of your checking account, make sure you balance your checking account every month and review it against your monthly bank statement to make sure your numbers are correct. To reconcile your account you must compare your bank statement to what you have written in your check register. Check off each item in your checkbook that matches the corresponding amount on your bank statement. If there are any transactions on your bank statement that do not match or appear in your checkbook, you need to determine if the bank statement amount is accurate or if the transaction is valid, and adjust or record in your checkbook accordingly. If the bank statement amount is not accurate or valid, you should notify your bank immediately of the discrepancy. When all transactions on your bank statement have been accounted for, you can reconcile the bank statement balance to your checkbook balance. The steps to reconcile your checking account can be downloaded by clicking the following link: Balance Your Checkbook in 5 Easy Steps.

Direct Deposit

With direct deposit, your paycheck is transferred electronically from your employer to your bank account. Many banks offer free services or incentives if you use direct deposit.

Debit Cards

Many financial institutions offer debit cards that work at ATMs worldwide (for a fee), and free if you stay within your bank’s network. These debit cards carry the VISA or MASTERCARD logo and can be used like credit cards. Purchases made with your debit card are automatically deducted from your checking account. Debit cards do not carry interest rates and do not have grace periods so it is imperative you have money in your account at the time you make the purchase.

Overdraft Protection

Banks offer overdraft protection to prevent bounced checks. Some banks will automatically enroll checking account customers into a program where the bank covers overdrafts for a fee. These fees usually exceed $30 per overdraft.

Overdraft protection is a good way to protect yourself from inadvertently writing a check that you did not have funds to cover. Below are the common ways that banks offer overdraft protection:

- Checking linked to Savings: If your checking account does not have the funds to cover a check or debit, money will be taken from your savings to cover the amount. Your bank will charge a fee for each overdraft.

Credit Card: Banks will offer credit cards in case of an overdraft. Usually banks will transfer more than is needed to cover the overdraft (usually in $100 increments). You will then be charged for the overdraft, and interest equivalent to a credit card advance will be charged on the funds.

- Line of Credit: If you have a line of credit established (usually tied to your home), the bank will transfer funds from this account to cover any overdrafts made to your account. Interest is then charged on the amount of money transferred from the credit line.

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Overdraft protection is also a great way to guarantee that your credit score will not be negatively affected. Ultimately the end result of this protection guarantees that a bad check will never appear on a credit report and may ultimately enhance your credit score although the costs to you may be high.

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- posted by Kimberly Credit @ Debt Consolidation & Credit Counseling