The special check, next to the credit card, is today the biggest cause of indebtedness of the Brazilian families. With very high interest rates, today there are not a few who twist their noses at this type of credit. But is there ever an occasion when it’s worth using? Does it make any sense to cancel the overdraft?
In this article we answer those questions and prepare some tips for you to never have problems with the overdraft.
The main reason the overdraft has become the great villain of debt is that it is a very easy credit. As it is already approved by the bank, you do not have to do anything to have it, except to take the money from your account. That’s where the danger lies. Since most banks add the overdraft limit to your account balance, it is for many that it is an “extension of salary.”
So, instead of spending only the cash you have on your checking account, the customer already includes your cash overdraft and goes live with it. What this generates, in the long run, is a snowball of debt, since the interest of the overdraft is very high, reaching more than 10% per month.
That way, if you hit the overdraft limit during the whole year, say, in the middle of each month, you can pay interest equivalent to more than one month’s salary. This, taking into account that you will not lose control of debt, an event that can generate even greater expenses.
When is it worth it?
Most of the time, it is not worth using the overdraft limit. Virtually every type of loan that any bank offers will have much lower interest rates. Even in an emergency, it is best to seek out your manager and negotiate a line of credit with good interest rates and monthly installments that fit your budget.
One of the few occasions when it may be worth using the overdraft is in quick moves, when you are sure that you can replenish the money in the very short term. By depositing the amount in a few days, the interest on the loan will be small.
It is also important that you see if your bank offers the possibility of a few days without interest on the overdraft. Nowadays some financial institutions give up to 10 days for the customer to move the special check without interest. But be aware: even without interest, the movement may generate some fees charged by the bank and taxes.
When to cancel?
Canceling the overdraft when you do not have debt can be a very radical measure, especially for those who have financial discipline. Canceling is the best option in just two cases: if you have no financial control or if the debt is already out of control.
In the first case, the temptation to use the overdraft should be avoided. If you do not have control of spending, it’s best to cancel the limit and go after some other type of loan at a time of real need.
In case the overdraft debt is already very large, it is also very important that you look for the bank to cancel it and negotiate the installment of debt. If it is not canceled, high interest and fees will continue to be levied on the total limit or, worse still, higher charges will be levied when the limit is exceeded.