Paying down multiple credit cards

Hi, all - 

I've been using YNAB for about six weeks. Absolutely love the positive changes it has already brought about in my life. That said, I need some advice on how best to reflect my chosen credit card pay down approach...

Background: I have three cards with a balance of around $7,000.  I've chosen to use the snowball approach to pay them off just like YNAB suggests. This means, I'm going to pay the lowest balance card first and just pay the minimum or others. (The debt avalanche approach - i.e. highest interest rates first - could also work but the debt is pretty equally distributed and the rates aren't that different). Plus, I may be able to make chunk payments with mid-year and year-end bonuses. Lastly, I'm not going to use the cards at all until I get this done. 

Question: I'm going to budget for $400 per month total for all three cards - $250 for the lowest balance and $150 for the other two. All three are loaded and connected in my register.

What's the best way to set this up in the software? And, how should I handle the interest charges that will appear in my activity? Is the best way to budget nothing for interest and set the available amount to zero when they arrive, so I can reallocate in TTB?

Thanks to all!

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  • Hey Euneed Aboogeet !

    You can set this up a number of ways, but I'd suggest monthly funding Goals for the credit cards. That way you can budget $250 towards the lowest card and $75 towards each of the other cards.

    Since interest is being charged, you can adjust those amounts as needed. We have a Help Doc to walk you through how to account for interest charges when you're carrying a balance on a credit card. So instead of goals for $250 and $75 each, you may set the goal for $225 towards the lowest card, $50 towards each of the smaller cards, and then $75 towards interest (just as an example).

    Take a look at those links and let me know if you still have questions! :)

    Like 3
  • Something you might also want to consider - if it's doable for you - is to budget the interest as a category rather than reducing the principal you'd be paying off. That way, you are meeting your $250 principal reduction goal each month AND attacking that interest at the same time.

    I started this shift this year, and I am thrilled with the progress I am making, in addition to feeling like I am actually making a dent in my debt.

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      • FreshStart
      • Sky_Blue_Inspector
      • 2 yrs ago
      • 2
      • Reported - view

      MicroSpice This is what I do, budget the interest and include it as part of the minimum payment.

      You can take this a step further, and enhance the snowball by spending a bit on the cards you're not paying off. I'm in the same multiple-card situation, so if I'm paying off Card A, and Card B has a minimum of $150, but only $75 of interest charged that month, I spend $75 of budgeted money (that I would have spent anyway on basic needs) on the card, THEN pay the minimum $150.

      Balance on Card B stays *exactly* the same each month, and now I have $75 extra to pay toward the principal on Card A.

      Like 2
      • Dazed
      • and a little less confused
      • dazed
      • 2 yrs ago
      • 2
      • Reported - view

      MicroSpice I'm with you on this one.  I budget interest as an expense separate from my minimum payment or debt snowball.  It helps me to better conceptualize interest as a cost of carrying debt.

      Like 2
      • Beige Hail
      • Beige_Hail.1
      • 2 yrs ago
      • Reported - view

      FreshStart Yes, exactly this! What none of the documents and training account for is that, if you a) budget for interest and b) use the card for purchases, you don't have to budget anything for minimum payment because the minimum gets covered by the amounts set aside for repaying budgeted purchases. This means that you can make interest=minimum payment, allowing for more-aggressive snowballing.

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  • I'd focus on one card at a time, paying minimum payments on the lower interest rate cards and the rest to the highest interest rate card. When that is paid off, shift to the highest remaining interest card. And then when that's paid off, the remaining card.

    This "avalanche" method gets you the best bang for the buck, as it reduces the overall interest you'll pay, which means you'll have more money paying down the balance and you'll finish quicker.

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  • nolesrule said:
    This "avalanche" method gets you the best bang for the buck, as it reduces the overall interest you'll pay, which means you'll have more money paying down the balance and you'll finish quicker.

     

    This is true for the most part, but does not always apply. If you are truly looking for "best bang for buck", meaning least possible amount paid in interest, then you have to look at actual interest paid and not just the interest rate. A $100,000 student loan at 5% interest, for example probably has a higher interest charge per month than a credit card loan of $3,000 at 25% interest. There are ways to calculate your payment structure to make sure you minimize your total interest paid across all loans. 

     

    Just putting it out there for awareness. There really isn't a one size fits all method. 

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  • I took the "Master Credit Cards with your Budget" and "When You Have To Use A Credit Card" webinars last night.  If you haven't taken them, I highly recommend it.  Getting more familiar with how YNAB handles credit cards and one question to the teacher and I solved a problem I had spent 3 days pulling my hair out over.

    Like
      • Brad Hull
      • Since YNAB Pro
      • sinceYNABPRO
      • 2 yrs ago
      • Reported - view

      Silver Robot 

      i am wondering why I am getting what seems to be follow up responses or comments  to this to this topic? We have had no credit cards since May 2006 and we started using YNAB Pro about 2009. I don’t object to getting the feedback back. I am having problems making sense out this “New” support forum.  Probably the lack of sufficient contrast between the dialogue box borders and the background.

      Like
    • Brad Hull Hmmm, I thought I was replying to a post from a week ago not years.  Maybe two posts with the same Subject line is getting its wires crossed, one from the old system and one from the new one?  

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    • Brad Hull  I also thought I was replying to  Euneed Aboogeet ,

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      • Brad Hull
      • Since YNAB Pro
      • sinceYNABPRO
      • 2 yrs ago
      • Reported - view

      Silver Robot  That is possible. I may have commented on someone’s post about credit card problems in the past. But I have been also getting what look like comments and advise on subjects I don’t remember requesting help for. The beautiful coloring schemes in the latest YNAB websites are challenging to respond to and use because the coloring and lines don’t have adequate contrast for my eyes.

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      • jenmas
      • jenmas
      • 2 yrs ago
      • 1
      • Reported - view

      Brad Hull The reason you are getting replies is that you "followed" the thread. I can tell you did this because on the right side of the screen there is a column and at the bottom of the screen is a list of who is following and I see your avatar. At the top of the column is a button to follow so I assume once you are following a topic the button changes to unfollow.

      Like 1
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