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What is a bounced check cycle?

What is a bounced check cycle?

In a previous article, we talked about the cycle of bounced checks.  Of course, many of our readers asked us what exactly is a bounced check cycle?  If you find yourself paying large amount of money to your bank to cover overdraft fees, you need to know what this cycle is and how to stop it.

When you debit your checking account, money is taken out of the account and deposited into the account of the company or person you are paying.  When there isn’t enough money in the checking account, however, the debit or check “bounces” or gets returned; the company is informed that the funds are not available, and the account holder gets slapped with a large fee from the bank.  Usually the company that was supposed to get paid adds their own fees as well.

Because of all of these fees, many people who make one mistake find themselves owing nearly $100 that they weren’t expecting to pay.  For people living on very tight budgets, this one added expense gets them started on a cycle of bounced checks.

What to do after a bounced check 

Immediately after bouncing the first check, it’s crucial to put a stop payment on everything else that could get processed before the next payday.  Often, this is impossible, and people will rack up several returned checks in one day.  That means they owe hundreds of dollars to the bank.

To pay for this, many people choose to use a credit card to cover their expenses until they can get everything sorted out. By using a card, however, they have added another bill that they need to keep track of.  Forgetting this new bill means that the following month, another debit or check gets returned for insufficient funds, and the account holder racks up more charges.

To break this cycle, it’s important to take  steps to reduce the number of bills that you need to keep track of and come up with a way to have a small amount of extra money in your checking account that can cover small mistakes.  Consolidating your debts can help you reduce the number of bills that you have to pay, making it easier to keep track of everything.  It will also lower your monthly payment on these debts, making it easier to set up a budget that allows you to save some money.

About Author: Debt Help Desk

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