Debt Consolidation Loan - Impact on Income v Expense Report
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!
- 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
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?
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.
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.
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.
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.