Credit Card Interest on Carried Debt
I carry a significant amount of credit card debt from a few years ago. I've been slowly paying it off but my low income until now has made it difficult to make much progress.
I'm really loving YNAB and the credit card features and goal setting is really helpful.
However, when I set a goal with my monthly payment, it doesn't consider the interest accruing each month. It treats that category as if it's just deducting straight from the balance.
Basically, I pay my interest each month and then a little bit extra. How do I keep track of this in YNAB?
Especially considering the interest goes down slightly each month, it all feels very overwhelming to plan accurately or even track after the payment have been made.
After finding another thread on this (sort of), I'm still a little confused.
Let's say I have $1,000 of carried credit card debt. I pay $100 a month because that's what I can afford to put towards it. The interest is 2% a month.
When the 2% comes in as $20 it is budgeted into Interest and Fees category.
I want that to be included in the $100 payment I make each month, but that is where I can't figure out how to make it work.
I basically pay the same amount every month even though the interest is slowly going down month after month. This is very confusing what to do with the Interest and Fees category.
Here's what I do
1. I have two category groups - the Credit Card Payments one which YNAB automatically creates and another one right under Credit Card Payments called Debt Payments. In the Credit Card group, I have the a category called Card 1 and under the Debt Payments I have a category called Interest - Card 1.
2. When I budget for the month, I budget the same interest I paid last month to Interest - Card 1 so if it was $120 last month, I budget $120 to this category. I don't set this as a goal, I just have a scheduled transaction for each month. I then budget under the Credit Card Payments for Card 1, my minimum monthly payment less the budgeted interest. So if my minimum payment is $200, then the budgeted amount under Credit Crd Payments for Card 1 is $200 minus $120 which is $80.
3. Then when the interest payment comes in, I adjust the amount ie. if it was $119.50 I change the amount of the scheduled transaction to $119.50 and approve the transaction. It will then automatically transfer the $119.50 to Credit Card Payments and you'll see a green bubble.
4. I then adjust the $ amount of my planned credit card payment so it adds up to the minimum payment. ie. $200-119.50 is $80.50. This also works if it is higher, eg. $125 instead of $120, then I change the Credit Card budget to $75. The Available amount on the Credit Card payment for Card 1 should equal the total ie. $200.
5. When you go to make the payment, enter the total amount ie. $200 as a transfer from your bank account to the credit card account (ie. payee is to/from Credit Card 1), and YNAB will take care of the amounts in the budget.
It sounds a bit complicated to explain, but isn't to do. If you can, view this on a browser not the app as it is a little easier to see the details.
Lots of options. Easiest is to leave the Interest category overspent (don't budget anything there) and just budget the $100 to the CC Payment category. Or you an cover the overspending from the CC Payment category (click on the overspent Available for the easiest way to do that).
Since you're not going to budget for it anyway, you can also categorize the interest as To Be Budgeted. Keeps it out of sight with zero effort. (It doesn't actually impact TBB. It does show up in the income section of reports.)
cover the overspending from the CC Payment category (click on the overspent Available for the easiest way to do that)
This is quite fun to do! You would just ignore the underfunded warning if you had a goal set on the CC for budgeting $100 each month.
I would keep the goal for ease of quick-budgeting. You could also use the Toolkit so you don't have to look at yellow underfunded goals.