The rule of checking accounts is that you should only spend as much as you have in your account. As a courtesy, your bank may process transactions that exceed your checking account balance however, that courtesy comes at a price. There’s not a legal limit to overdraft fees banks can charge, but most banks keeps fees at a certain level to remain competitive with other banks.

An overdraft is unfortunate, but it’s important to take care of the negative account balance as quickly as possible. Leaving your account negative could cause more costly problems.

Outstanding Overdrafts Cause More Overdrafts

As long as your checking account balance is negative, any transactions that post against your account will also overdraft. The bank will charge an additional fee and the balance will become more negative. At some point, the bank may decide to stop processing overdraft transactions and instead return them for insufficient funds. Returned transactions can cause more problems because your bank and the merchant both charge a fee. Once you bring your account back into the positive, your transactions will process normally.

Check Cashing Gets Complicated

You can’t cash any checks against a checking account with a negative balance. Your bank will require you to first deposit enough money to bring your account balance positive. Then, you can receive the rest of the money in cash. You could still cash your check at a check cashing place, but you’ll have to give up a percentage of your check to do so.

If your pay is direct deposited into your account, it will automatically be used to cover the negative balance. As a result, you’ll have less money available to cover your expenses and you may end up overdrafting again.

A Potential for More Fees

Your bank may charge a fee if your account remains negative for a certain number of consecutive business days. The fee may be charged just once or, worse, each day your balance remains negative, depending on the type of transaction that cause your account to overdraft. Your checking account’s fee schedule will include the amount and frequency of any extended overdraft or negative balance fee associated with your account.

Your Credit Could Be Affected

A bounced check or short-term negative account balance won’t directly affect your credit history. Unfortunately, if you leave your account overdrawn for several weeks or months, the bank may close the account and send the balance to a collection agency. At that point, the delinquent account could be added to your credit report. Once the account has been added to your credit report, you can’t easily remove it, even after you clear up the negative balance. It’s best to pay your overdraft long before it becomes delinquent enough to be referred to a collection agency.

Difficulty Opening Future Checking Accounts

Many financial institutions report negative checking accounts to ChexSystems, a company similar to a credit bureau, but for bank accounts. If you’re listed in ChexSystems for mishandling your checking account, you may have a hard time opening an account with another bank.

You’re entitled to a free report from ChexSystems each year. You can order it by visiting ConsumerDebit.com. Inaccurate information can be disputed just as with traditional credit reports.

Preventing Overdraft Transactions

Many overdraft transactions can be prevented. For one, you can opt-out of overdraft fees for debit card transactions. Your bank would decline any debit card transaction that exceeds your available balance. Or, if the bank processes these transactions, they can’t charge a fee. You can also link your checking account to a savings account or line of credit and overdraft transactions would be processed using that account (if there's enough funds or available credit).

Monitor your checking account balance and consider upcoming bills and expenses before spending money. Spending only what you can afford to is the best way to avoid overdraft transactions all together.