Bad Advice

Browsing the personal finance section of Reddit, I came across this post on the Yahoo Contributor Network: “Not Having a Checking Account Is Saving Me $750 a Year“. The titled seemed promising, I thought maybe someone would offer an interesting perspective of going cash only or maybe they’d stopped using a debit card with fees and switched to a great cash back credit card.

No dice. Instead, I was treated to an interesting tale of irresponsibility coupled with a fundamental misunderstanding of how a checking account works. All of this in just five paragraphs!

The author, Tiffany, ditched her checking account because, drumroll please, she kept over-drafting. Just how much does she overdraft? Read this and try not to facepalm:

If I am being honest, in the last year we have spent enough on overdraft fees to pay our rent for one month. This has saved us close to $70 a month already, if not more.

First off, I do want to give her some props for admitting this. A lot of people wouldn’t, so she does get at least a point or 2 for putting it out there. But what a waste. I could illegally purchase a lot of beer with $70 every month. Or devour a Chipotle burrito 2X a week. The possibilities are endless.

The article continues to explain that Tiffany does still have a debit card in the form of a prepaid Wal-Mart Visa. That piece of plastic costs $3 per month and $36 a year!

But the evil checking account had to go because “…it was so easy to overspend and accrue overdraft charges. Now we either have the money, or we don’t.”

This “solution” is similar to moving when your house catches on fire instead of putting the fire out. Yes, what she’s doing now is better than over-drafting every single month. There’s a bigger, more basic, problem with that scenario though. She was over-drafting every single month!

That’s a sign that you’re not being responsible. Checking accounts come with check registers for a reason. All you have to do is write down what you spend and what you deposit. Or do what I do: keep a buffer in checking and constantly check your account online 5 times a day.

Plus, you can TURN OFF OVERDRAFT “PROTECTION”. Banks now have to give you the choice of whether you want a debit card purchase be declined or approved if you don’t have the money available. Use that power to help yourself.

Here’s a better solution: Open a checking account with no fees. I use ING Direct (email me if you want a $25 bonus) but there are plenty of others. Don’t over-draft. Earn interest on your money, instead of paying for a crappy Wal-Mart Visa card, and enjoy the convenience of online bill pay.

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