Debt Consolidation Loan - Impact on Income v Expense Report
Background
Similar to this thread, I secured a debt consolidation loan because the interest I would start paying on credit card debt would be much higher than the interest on the loan. We did the math and this made the most sense. Thanks to YNAB, over the past 8 months we haven't accumulated anymore debt, already paid off >$20k in debt, and we've been sticking to our budget!
The Setup
- I have the Credit Cards as Budget accounts
- I created a new Debt Consolidation Tracking (non-budget) account
- The loan amount will be dispersed to my Checking account and I'll use the full amount to pay off Credit Cards
The Issue?
I've tried a few different ways, but I'm not sure the outcome I'd like is possible (or even correct).
- Method 1: Create a transfer from Debt Consolidation to Checking and set Category as "TBB". Create payments/transfers from Checking to Credit Cards.
- Method 2: Create a transfer from Debt Consolidation directly to Credit Cards and set Category as "Debt Consolidation". In Budget transfer amounts from "Debt Consolidation" to "Credit Card Payments" Category.
Regardless of method, I end up with an overinflated Net Income for the month on the Income v Expense report. The only difference is whether I have an inflated Income (Method 1) or inflated Expenses (Method 2). I might just be thinking about this wrong, but in my head this would be a wash since it was coming in and then directly out. What am I missing?
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It is a wash except you moved the debt from on-budget to off-budget. So on the budget side of things, it's income only. And the income vs expense report only looks at the budget perspective.
But if you go with method 2, you can deselect the "Debt Consolidation Loan" category from the report and then you don't see the income. You can't do that with method 1.
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Ceeses Good idea. I might create a specific category for the transaction then hide it when looking at the report.
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I would categorize the inflow as Inflow: To Be Budgeted in either case. If it goes into checking before making a payment, just budget for the larger CC Payment Available.
Income is just money coming into the budget. It is not limited to paychecks.
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dakinemaui Whether or not it comes in to the TBB category or "Debt Consolidation Loan" category I would eventually need to allocate out to the Credit Card Payments category when I make the payment. In the Income v Expense report Credit Card Payments category isn't displayed so that movement isn't recorded there. I think this makes sense by design if you started YNAB with zero credit card debt or else you would be double counting.
It's not exactly what I wanted, but I think I prefer Ceeses idea of hiding the category in the report.
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JTF said:
in my head this would be a wash since it was coming in and then directly out. What am I missing?I wouldn't want to see the magical jump in Net Worth with your #2. Bringing it in as TBB avoids that, no matter if you pay the CC directly or make the payment from checking.
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dakinemaui Well...there is definitely no impact to Net Worth, that is truly a wash. Only to the Net Income line in the Income v Expenses report.
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JTF and going forward, you will be using the Debt Consolidation Loan category to record your actual loan payments, which will show up in your income/expense report since you are sending that money off-budget.
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Another way to see it. If you look at your total of your on-budget accounts. It is the sum of your cash accounts (X) minus your liabilities (Y). So before the consolidation it was X-Y. Now, Y=0, so it is X. So you still have the same amount of cash in the budget but you are "richer" by $Y because your liabilities are now $0.
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Maybe Method 3?
If I create the Debt Consolidation account on Budget (as a line of credit) then it shows up as overspending for July, but all my reports look much more reasonable. The account shows up under Credit Card Payments, which isn't necessarily what I'd like, but don't think that's an issue at all since I'll be closing the account eventually.
I'm curious if anyone anticipates other possible issues Method 3 may cause.
Edit: Just thought of one 😒 I would need to budget for Interest Charges every month and that transaction would add to the Credit Card Payments category.
