Credit Card Refunds/Cash Back While on the CC Float

I've been using YNAB for a few months now and have been lurking the forums.  This is a very helpful and positive group, so my thanks to the community.  I need some help fully understanding the mechanics behind credit card refunds and cash back when riding the credit card float.  I can't tell whether the float has anything to do with this, but it seems that under some scenarios the credit card refund "disappears" and isn't reflected in the budget.   

I've read that the recommended approach for handling a credit card refund of a purchase is either:

  1. Assign the refund to TBB.  When I do this, TBB doesn't change (remains at $0), the budgeted category numbers related to that purchase don't change, and the entries for the credit card payment budget line entry don't change.  The credit balance on my credit card account (listed on the left of the screen) went down by the amount of the refund when I entered the refund or when it was pulled from the credit card company.  Essentially, this method uses the refund to decrease the amount that I'm floating, but there is no visible effect on my budget, and it results in showing an inflated amount of spending for that category in the reports.  
  2. Assign the refund back to the budget category that was associated with it, let's say clothing.  When I do this, TBB doesn't change (remains at $0).  In the clothing budget, the Activity decreases by the amount of the refund, and the amount available increases by the amount of the refund.  In the credit card payment budget line entry, the amounts for Activity and Available for payment both decrease by the amount of the refund.  The balance owed on the credit card decreases by the amount of the refund.  Since the amount Available to pay on my credit card and the balance on my credit card both decreased by the amount of the refund, the amount of credit card float remains unchanged, but the budget categories reflect more accurate spending.  If I wanted to reduce the credit card float under this scenario, I would manually move the excess funds budgeted from clothing to the credit card payment category.
  3. And, as a tweak on number 2:  Assume I haven't fully budgeted for the spending category and have credit card overspending - let's say I bought two pairs of shoes in different sizes but budgeted for only one, knowing I'd return the other (and no other transactions to worry about).  When I return the second pair of shoes and assign it to the same clothing category, the clothing category has its Activity decrease by the amount of the return, and the Available amount for that category goes from a negative amount equal to the second pair of shoes back to zero.  The credit card payment budget entries remain unchanged.  The balance owed on the credit card goes down by the amount of the refund.  

For cash back earned on a credit card, it's basically just scenario 1.  

So, to the questions:

  1. Is that all how things are supposed to behave?
  2. Does anything change if the refund is processed in a different month than the purchase (pretty common for clothes shopping in my household).  
  3. Can someone help me better understand what's going on "under the hood," in particular with where the refund "goes" under items 1 or 3?  The refund is clearly being processed into the budget somehow, but then it looks like it "disappears."  So what is the program doing with it that results in no or few visual changes tot he budget?    
  4. Are there any other things I should be considering when deciding how to process credit card refunds or cash back?

For those who might ask, the goal is to gradually work off the float now that I understand I'm on it.  All cash back rewards go to that, along with periodic budgeting when possible.  And again, I can't really tell whether the float has anything to do with this, but it seems that the money "disappearing" from the budget under scenarios 1 and 3 has something to do with floating or underbudgeting categories.

Thanks, everyone!

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  • Basically:

    Cash back goes to TBB because it's new money. It's not a refund.

    Refunds go to the category because it's a return of money previously spent in a category, and you want your spending averages to be accurate.

    When money goes to TBB on a credit card, it essentially pays off some of your debt with new money directly (essentially, a third party has made a payment against your CC balance). So your debt is reduced, but you still have the same amount of cash in your cash-based accounts to make a future payment, so your payment available does not change.

    When you refund money to a category, that money goes back into the category, so it is no longer reserved to make a credit card payment, assuming that the refund happens in the same month that you have spending in that spending category.

    There are some gotchas with a refund: if the refund happens after a payment, you may end up overspent. You fix this by moving the money from the spending category back to the CC payment category. Your scenario 3 can also fall prey to "interesting" behavior" this if you end up having to make your payment before the refund is processed.

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  • Refunds for things you've returned or gotten some type of credit for should go back to the category that the original purchase was made. As you saw, this won't change your budget or TBB amount.  It will just change the Available $ for the category, and decrease what you owe on the credit card.  Do this even if the refund is in a later month.  It will increase your Available for the month.  Think of it as if you didn't spend the money last month and the surplus rolled over to this month.  You can still keep it the category or move it to another category.

    Credit card cash back rewards are just straight up income - like interest earned on a bank account.  It should be an Inflow: To Be Budgeted.

    Your questions:

    1 - sure

    2 - no change - see explanation above.

    3 - I can't explain what's going on "under the hood". I'd expect a cash rebate inflow to be extra cash that can be budgeted - even if it was automatically was automatically budgeted to the credit card.

    4 - none that I can think of right now

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  • Steel Blue Yeti said:
    For cash back earned on a credit card, it's basically just scenario 1. 

     What I do is I have a category called Cash Back in my banking fees and interest category group. When the cash back is credited to my card, I assign it to this category. Then we decide what we want to do with that money. Its the same idea as TBB but it isolates it nicely so it doesn't get lost. This past year, most of it went to Christmas, which was our plan. I also have a category called Dalmation which is where "winfalls" go (retro pay being the main one). Again it lets us mull it over and be very intentional with that money. Then when we decide, we move the money from Dalmation to the category we are using it for. And I usually make a note in the category as well.

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  • Technically it's a discount, which perhaps should be distributed back into the categories giving rise to the reward -- proportionally, of course. Almost no one has time for that (except in isolated cases where spending is against a single category), so regarding it as new money is typically the better option.

    Furthermore as you point out, the "float" (difference between account and Payment category balances) is reduced this way. If you were to try to reduce the float after distributing the reward back into various categories, you'd need to take it back out from all those spending categories via budget adjustments.

    Bottomline: I'd strongly recommend your Option #1 (TBB).

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  • Steel Blue Yeti said:
    with where the refund "goes" under items 1 or 3?  The refund is clearly being processed into the budget somehow, but then it looks like it "disappears." 

    Actually, it doesn't go into the budget at all. (I can hear the needle scratch in your mind already. 😉)

    The budget is the plan for your cash, and a purchase reward via statement credit is not cash. This is actually a sore spot for paid-in-full users, because they already have enough cash reserved to pay off all purchases without the reward. They have to manually adjust the CC Payment category to get that money to actually show up in the To Be Budgeted area and not contribute to an overpayment. #busyworksux

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  • Bottomline summary on CC inflows: actual returns and reimbursements are categorized back to the original category because you want to "cancel" that spending. Everything else (typically) comes in as To Be Budgeted.

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  • dakinemaui said:
    Actually, it doesn't go into the budget at all. (I can hear the needle scratch in your mind already. 😉)

     Nice metaphor, but actually, this helps a lot.  Since everything else that goes to TBB *is* cash, and thus shows up as money available for budgeting, I'm instinctively expecting the CC inflow going to TBB to be treated the same way.  So, I need to think about CC inflows going into TBB differently.  You mention it being a "discount" earlier - is that the right way to conceptualize it?  My credit card company is oh-so-generously reducing my balance due, and YNAB can understand what's going on and knows not to treat that like cash in my budget?  I think that last part is the kicker.  Does YNAB understand how to handle this because it's an inflow on an account I set up as a credit account, rather than as a checking account?  By contrast, when my bank pays interest, and I put that to TBB, YNAB seems to understand and increases my available money for budgeting.  I think I understand what steps I'm supposed to be taking, but I feel much more comfortable relying on the software if I understand the *why*.

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  • Steel Blue Yeti said:
    Does YNAB understand how to handle this because it's an inflow on an account I set up as a credit account, rather than as a checking account?

    Exactly.

    IMHO, YNAB should display "Debt Management" instead of "To Be Budgeted" in all credit-based accounts. That's exactly what is implemented, and this would eliminate the reoccuring confusion about why something the user has denoted as "To Be Budgeted" cannot, in fact, be budgeted. Feature request form is on the main support page. 😉

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  • dakinemaui said:
    c onfusion about why something the user has denoted as "To Be Budgeted" cannot, in fact, be budgeted.

     It also drives me crazy that the "Overspent in <Previous Month>" budget header will show $0 even if you did, in fact, overspend.

    I really despise the way YNAB handles credit cards.

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    • bret Definitely some improvements over YNAB4 for the masses, but it's far from perfect. Lots of room for improvement, if they would only listen to Feature Requests. I've given up making them.

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