7 Crucial Steps To Take If Your Bank Balance Hits $0 Before Payday
A zero balance in your bank account when payday is still several days away can trigger a panic to find money wherever you can. Before reaching for a credit card, cash advance or short-term loan, financial experts say your first priority should be figuring out exactly what still needs to be paid, and which expenses can wait.
A few strategic moves may help you avoid overdraft fees, protect necessities and bridge the gap without creating longer-term debt.
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1. Find Out What’s About To Hit Your Account
Before scrambling to find more money, said Beth Stenz, a certified financial planner (CFP) at Edward Jones, you should check for recurring expenses that could draft before payday and then contact your bank.
Check subscriptions, utilities, loan payments and other autopayments so you know the actual size of the shortfall rather than reacting to the zero balance alone.
“You cannot triage what you have not written down, and until you have, the problem feels unbounded,” said Nick Avila, founder of United Debt Relief.
2. Prioritize Bills by Their Consequences
If you can’t pay everything, focus first on essential obligations like rent or mortgage, car payments and utilities first, Stenz said, since missed payments could potentially lead to eviction, repossession, service shutoffs or credit damage.
Avila described this as paying “by consequence, not by pressure.” Minimum payments on debt should come last.
3. Call Your Bank and Billers Before Payments Hit
Don’t wait for an overdraft or missed payment before asking for help. Stenz recommended contacting your bank or credit union as soon as you know you’re at risk of overdrawing the account. They may have options for avoiding or waiving fees, while billers may be willing to shift a due date or otherwise give you more time.
Avila also suggested calling the billers themselves.
“Due dates are far more negotiable than people assume, and many companies will move one on a single phone call at no cost,” he said.
Being proactive can avoid double charges, from the bank and the biller, Avila stated.
4. Look for the Lowest-Cost Way To Bridge the Gap
Before borrowing, consider transferring available savings into your checking account, since you can replenish the money after payday, Stenz suggested. If you need to borrow, compare interest rates, fees and repayment terms rather than automatically choosing the fastest source of cash.
It’s also a good time to temporarily reduce discretionary spending.
5. Be Especially Careful With High-Cost Short-Term Borrowing
Though you may think that any way to get quick cash is good in this situation, some instant cash products can make next payday harder through fees or repayments.
“Understand exactly what it will cost when repayment is due," Stenz said, "and whether there are more affordable alternatives before committing.”
With payday loans, their structure may be a more of a concern than their rate, according to Avila. A short-term loan requiring full repayment out of the next paycheck recreates the same shortfall two weeks later, he said.
Also, credit card cash advances generally begin accruing interest immediately and can carry a separate fee and higher rate than ordinary purchases.
6. Use a Credit Card Only if The Shortfall Is Truly Temporary
If you must put essentials like groceries or gas on a credit card, be sure you can repay this quickly, according to Stenz
“If you’re relying on credit cards for everyday essentials because your income isn’t covering your expenses," she said, "that may be a sign to take a closer look at your overall budget and cash flow,” she said.
Credit cards can be useful as a one-time emergency stop gap, but they become problematic as a long-term solution.
7. Use Your Next Paycheck To Break the Cycle
Once payday arrives, resist simply resetting everything and forgetting about the problem. Review several months of spending, account for irregular expenses and begin building even a small cash buffer.
Stenz recommended looking beyond a single pay period because expenses such as car repairs, memberships, taxes, personal care and so on may occur irregularly but still need to be built into the budget.
“If finances are this tight, any amount will help, no matter how conservative the figure," she said. "The most important part is automating it, so that the savings becomes part of the budget. Pay yourself first.”
The goal when your balance hits zero is to get through the shortfall without making the next payday even harder.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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