New Year, Fresh Finances: How to Rebound After Banking Troubles

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Not everyone is banking on having a bank account in the new year. Maybe your checking account was overdrawn one time too many, or you hit a financial rough patch and your credit took a hit. Now you might be without checking or savings.

But this can also be the year you get back on firm footing. Just ask Steven Hughes, founder of financial literacy company Know Money.

“When I was in college, I made a lot of money mistakes, including purposely overdrafting my account to cover food and gas,” Hughes says. “The fees kept adding up, and there were also other bills coming due at the same time.” Hughes’ bank eventually closed his account. But he was able to turn his finances around and now encourages people in similar situations.

Bank account setbacks are so last decade. Here are some ways to improve your finances in the new year.

1. Know what you owe

Before you can improve your finances, you have to know how much you have — and how much you owe.

Hughes reached out to his former bank and learned he had a record with a national consumer reporting company, Minnesota-based ChexSystems. This agency collects information from banks about checking and savings accounts the institutions have closed, often for excessive overdrafts and nonpayment of fees.

Hughes contacted the company and asked for a copy of his record, which showed his outstanding negative bank balances. Once he knew what he owed, he contacted those institutions and set up payment plans.

“I wasn’t able to pay a lot right away, because I was still in school and didn’t have a full-time income. But by communicating with the banks, I was eventually able to pay what I owed,” he says.

2. Apply for a second chance bank account

If you have a ChexSystems record, it will be difficult to open a new account. But many banks and credit unions offer second chance checking. These accounts give customers banking access, usually with a few restrictions.

For example, there’s usually an unavoidable monthly fee, often around $10. You probably won’t have an overdraft program, and there could be daily spending limits. But you’ll likely have free direct deposit, an automatic savings plan and online bill pay. After about a year, you can generally apply for a standard, free checking account.

Prepaid debit cards are an alternative to second chance checking, and they might offer an ATM network or allow you to sign up for direct deposit. The best prepaid debit cards have no monthly fees and free deposit options.

3. Create a spending plan

The new year is a good time to create a new budget, which is simply a plan for how you’ll spend your income. Some people use budgeting apps to create plans; others use good old pen and paper. With a budget, seeing your income and expenses in one place might help you find ways to cut back on spending. You could then use the savings to build an emergency fund, so you can be ready for any future setbacks.

A budget could even help you spot potential pitfalls in advance. By paying closer attention to his spending, Hughes says, he might have noticed that several of his bills were due at the same time, putting a strain on his account. “Something as simple as rearranging the due dates on my bills could have helped me avoid overdraft fees,” he says.

4. Get inspiration

NerdWallet has interviewed people who’ve paid off hundreds of thousands of dollars in debt. If this is your goal, read some of their stories. They can inspire you to stick to your budget.

Hughes says hearing others’ success stories helped energize him as he eventually opened a new account at a credit union, fully funded his savings goals and started investing. “Whether you look on a site like NerdWallet or call the one friend you know who is good with money, reach out and get help. Then keep going,” he says.

5. Take action now

Planning is good, but the most important step is getting started. Look at the actions above and commit to doing one at a time. Racking up small financial wins can help you stay motivated.

Yes, you can leave old banking mistakes in the past. By making a fresh start with your finances now, you will eventually have your own inspirational story to share.

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