Checking how to handle a credit card when you can’t pay it all off each month

I want to make sure I understand. Normally when you buy something on credit the money goes to the CC payment category so you can pay the bill. I’ve done this for years and never thought about that category.

So now obviously I can do rule 3 and move money around but maybe I just can’t make it work. I THINK the way to do it is to reduce the CC payment category and use the money to cover whatever else, which also indicates that the payment will be lower because you only pay what the category says.

And then later when you have more money, you put extra money into the payment category to represent paying off the debt.

Do I have that right?

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  • I would only use the second part of your statement:
    Paying off credit card debt as soon as you have money to pay it off.
    I would never use rule 3 to steal from this category. 
    If there is really no money to keep all categories NOT red, then you just have to go like this into the next month, and then try to set the red categories to yellow first.
    First priority is the cost of living and the bills.
    Second, the red categories.
    Thirdly, the credit card costs because they are probably the most significant because of the rate.

    Tomcad from Switzerland

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      • Floofie
      • floofie
      • 2 wk ago
      • Reported - view

      Tomcad so if I just leave a category yellow at end of the month? Is that what ynab does behind the scenes? Just borrow from the CC payment? It says that leaving things yellow will create debt so is that what they mean?

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      • satcook
      • satcook
      • 2 wk ago
      • Reported - view

      Floofie you leave the category overspent. Next month the category will say $0 and you will need to budget to the credit card payments category until the amount in the available bubble equals the total due.  You can do this over the course of a few months if you want. :-$

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  • Hi Floofie
     

    Maybe my English is too poor for me to understand your question correctly, but no, yellow in YNAB terminology does not mean that you are in debt directly.

    It only indicates that you either have a future payment for this category that is higher than your budgeted amount, or a goal that you would not achieve with the current amount.

    This is not a problem as long as you can cover this amount with future income.

    I think if you start serious with YNAB and follow rule 2 completely, it is normal for many people not to get all categories green in the first few months.

    But that's the magic of focusing on these "problem areas" and gradually turning them green.

    Greetings Thomas

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      • satcook
      • satcook
      • 2 wk ago
      • 2
      • Reported - view

      Tomcad a negative yellow number means you are creating debt. 

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  • satcook :

    But this is always coupled with the CC warning symbol, correct?

     

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  • Floofie , All of what you said is correct. 

    If you need the money that's reserved to pay your CC in full so that you can pay for something more immediate, then yes, use Rule #3 to reallocate from the CC payment category. 

    Obviously, doing so means you're creating debt, but that is what you said your situation is. It may be that you're going from PIF to floating (debt without interest), or maybe you're needing to space out the payments and pay some interest. 

    I would not leave random categories overspent, because any negative number means your plan is not feasible. I'd rather ensure that individual categories are supported and also know that I've retained enough in the CC payment category to support the payment I intend to, whether that's the statement balance or less. 

    Sure, in normal times it's good to have a personal, behavioral rule to not reallocate from the CC payment category, but if you're in a situation where you need the option of debt, the mechanics you stated are correct. 

    Leaving categories negative means you're lying to yourself about your plan, and YNAB will force some changes at month's end, but why live with a false plan until then?

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  • Tomcad said:
    If there is really no money to keep all categories NOT red, then you just have to go like this into the next month, and then try to set the red categories to yellow first.

     This is what the official YNAB Budgeting When You're Broke video says, sure. 

    If you're really rolling RED (not yellow) categories over each month, doesn't that mean your bank account is negative and you're living in overdraft? 

    If so, there's a better way to represent that in YNAB. Look up offsetting a European overdraft account on the forum. 

    If you're leaving categories red, that's not creating a feasible plan. You can't use your categories for guidance.

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      • Floofie
      • floofie
      • 2 wk ago
      • Reported - view

      Move Light Sound Life No I'm not leaving them red. I have money in some categories, but I don't necessarily want to zero out everything. I'm ok with floating some small CC debt, I just didn't know how to represent it. Now I see that I was correct: I can just pull money from CC payment (not a good idea, but we are where we are) and then put it back in later

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      • Floofie
      • floofie
      • 2 wk ago
      • Reported - view

      Move Light Sound Life Basically I have a large negative category because of an unexpected expense. Even if I zero everything out, I still can't cover it and I can't just zero everything anyway (gotta eat). So I float some CC for a short time.

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  • The yellow overspending means you incurred debt with no immediate plan to pay that debt off. So one way is to just leave the overspending.

    Personally, I find that sloppy, and it looks like a mistake. When I CHOOSE to finance something, I have decided that purchase is more important than maintaining my current level of debt.

    Recall, when reallocating, you should always take from a lower priority category... which in this case is the CC payment category.

    You'll note this reallocation makes that purchase a budgeted purchase, flowing funds back to the CC Payment category. This puts the Payment Available right back where it started!

    More importantly, there is no overspending nagging for a conscious choice to finance something.

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