Credit cards and interest are confusing me

For this question, let's just focus on the Amazon Card shown above.  I started a fresh budget, and added the Amazon Card which has a balance that I will budget to pay $75 on each month. I was charged $4.28 in interest this month, which I also budged for. This leaves $4.28 left in the payment column, and I have no idea if I'm just supposed to let it sit there and roll over into the next month, or transfer that extra money into the To Be Budgeted category.

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  • You need to move 4.28 into your Amazon Card budgeted Payment amount. Currently you budgeted $75 for payment. If you want to budget $75 plus $4.28 interest then you need to budget $79.28. You said you already budgeted for the $4.28 interest. Where? You need to move it to your Amazon Payment category.

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  • OK, now I see that 75 - 4.28 = 70.72 which is what it shows you paid on the card. You should have paid 75 then rather than 70.72. That would leave you with a $0 payment balance.

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      • Beige Hail
      • Beige_Hail.13
      • 8 mths ago
      • 1
      • Reported - view

      Superbone I did pay $75. I've attached the details from that Activity column.

       

      Like 1
  • The $4.28 is the payment you still need to make to the Amazon card. 

    You have budgeted $75 against the category of Amazon card. Then you budgeted the $4.28 in the interest and fees category. YNAB knows that the budgeted amount is against your Amazon card because you would have had it as the payee in the interest and fees category. So, it moves that amount to the payment on the Amazon card line. 

    Once you make the payment of both $75 and $4.28, the payment will become $0.

    Like 1
  • Thanks everyone for your input. I'm still foggy on the matter, though. What if I just want to pay $75 a month. How do I record that the interest of $4.28 was charged without budgeting for it? (Because if I budgeted it, I'd be forced to pay it in order to zero it out apparently)

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    • Beige Hail If you want to pay $75 total that includes the interest, you would budget and record the $4.28 to the interest category and the difference of $70.72  to the Amazon Card. Then the total payment will be $75. 

      I had assumed that you wanted to budget $75 to the debt repayment plus interest. If you want any debt repayment to include interest, you need to subtract the amount you put into the interest category to get the total.

      Like 3
    •  Beige Hail I hit reply too soon. Here is another way to visual it.

      As currently displayed for the topic starter:

      Interest and Fees $4.28 plus Amazon Card $75 equals total payment $79.28

      What you would like to do (my understanding):

      Interest and Fees $4.28 plus Amazon Card $70.72 equals Total payment  $75

      Either way you need to budget for the interest otherwise there is no money set aside to pay for it. Hope this helps.

      Like 3
      • Beige Hail
      • Beige_Hail.13
      • 8 mths ago
      • 1
      • Reported - view

      Navy Blue Pegasus Yes, that definitely helps. Thanks!

      Like 1
    • WordTenor
    • I have the honor to be your obedient servant
    • WordTenor
    • 8 mths ago
    • 2
    • Reported - view

    When you spend budgeted money, YNAB automatically reserves that money for paying back the card. So when you budgeted $4 for interest, YNAB added that $4 to the $75 you had already budgeted for paying the card so that you had $79.28 available to send to the card. You sent only $75, so you still have $4.28 left that you could send. This is just like groceries: if you had $79 in groceries and spent $75, you’d still have $4 you could spend on additional groceries. The only difference for the credit card category is that money moves to that category automatically. But just like any other category, it can be underspent and overspent. 

    The best practice for the fullest card paydown is to budget for both your interest charge and for the amount you wish to pay down the card in addition to that. I would certainly say that if your interest charge is this small each month, this is probably the best course of action for you. So next month perhaps your interest will be $4.05, and you’ll end up with $79.05 reserved for paying the card. Pay that whole amount; not just the $75. 

    Some users would rather just budget a fixed amount to the card each month. In that instance, you can manually split your amount into the budget for the card and the budget for the interest as described by  Navy Blue Pegasus , or you can budget $75 to the card category and leave the interest category overspent. A shortcut is that you can cover the overspending with the credit card category and it will effectively split your budgeted amount into “interest” and “remaining.” In your example, if you did that, you would’ve seen your $75 change to $70.72 budgeted to the card category and $4.28 budgeted to the interest category. But this way does not budget for the interest separately from your debt reduction amount, and your card paydown will be slower as a result. 

    Like 2
      • Beige Hail
      • Beige_Hail.13
      • 8 mths ago
      • Reported - view

      WordTenor Thanks for the thorough explanation!

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  • How did you arrive at the fact you can only pay $75? In fact, you budgeted $75 for debt reduction over and above that after paying for any budgeted purchases. The Interest was budgeted separately -- you "bought" additional time. If you made any other budgeted purchases, the cash backing those purchases would also have moved to the CC Payment category.

    Until your payment exceeds the statement balance, you should be paying the full amount shown in the Available column. Anything less unnecessarily incurs interest.

    The amount you throw at any expense is dependent on priorities, and it all has to fit. As the per-month demand from various True Expenses decreases, it's highly likely you can devote more than $75 toward debt if that is in with your priorities.

    Like 1
      • Beige Hail
      • Beige_Hail.13
      • 8 mths ago
      • Reported - view

      dakinemaui For this particular card, I made a one-time purchase, and now I'm paying down that dept each month without making additional purchases, other than the interest charged which as you mentioned is effectively a purchase. So that $75 is what I can spare in my monthly finances.

      Like
  •   So if I may indulge everyone's patience just one more time... I have the Amazon and CitiBank cards budgeted appropriately based on the explanations I received here, but I'm still confused with how to handle the PNC card, which is what I run all my expenses through and then pay off each month without incurring interest. This may only be a problem since this is the first month in this fresh budget, but after I recorded my credit card purchases and credit card payment for the entire *calendar* month, I was left with $482.44 in the payment column. Could this be from the fact that my billing cycle ends somewhere in the middle of the calendar month, but for this fresh budget I started recording my expenses at the very start of the month? If so, then what do I do with the green column? Leave it alone? Or instead click on it and move it to the To Be Budgeted category? (if I do this, it actually puts a negative number in the Budgeted column). Thanks in advance!

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 8 mths ago
      • Reported - view

      Beige Hail What does YNAB say is the balance on your PNC card?

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      • Beige Hail
      • Beige_Hail.13
      • 8 mths ago
      • Reported - view

      nolesrule As of the end of the month in question, approx $2400. And I have fallen behind in paying off the card every month, so there is a rather large balance that I'm carrying.

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      • WordTenor
      • I have the honor to be your obedient servant
      • WordTenor
      • 8 mths ago
      • 2
      • Reported - view

      Beige Hail That sounds right then. The budget is showing you that you can afford to pay only $480 of that card, based on your budgeted purchases. When the card is due, you should pay the entire amount in the card payment category and no more. Since you say you are carrying debt on this card, then it shouldn’t be equal to the card balance. 

      Note that mathematically, continuing to use a card on which you are carrying a balance is inefficient because even if the funds are budgeted for, you incur interest from the moment the purchase is made. There is no grace period if the prior month’s statement balance was not paid in full. I’d switch to my debit card if all my credit cards were carrying balances. 

      Like 2
      • Beige Hail
      • Beige_Hail.13
      • 8 mths ago
      • Reported - view

      WordTenor So I should leave that green column ($482.44) untouched, and let it roll over into the next month? I don't need to manually move it to the To Be Budgeted category?

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 8 mths ago
      • Reported - view

      Beige Hail if you've fallen behind, you are incurring interest on the balance. i would just send off another payment in the amount of the CC payment category available balance.  $482.44 at 20% for one month is an extra $8 in interest. More interest slows down your debt payoff in a compounding manner.

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      • dakinemaui
      • dakinemaui
      • 8 mths ago
      • Reported - view

      Beige Hail To Be Budgeted is the amount of money WITHOUT a plan. That should be $0 the vast majority of the time.

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    • Beige Hail The amount of $482.44 is the amount that you used to make purchase with this particular card AND that you have budgeted for in the other categories. Once you have budgeted for the expense, that dollar amount moves to the category payment of the credit card. Then, when you are ready to make the actual payment to the credit card, you use the "Payment Amount" column to show you how much you should pay. The timing of the payment for YNAB is not as important as you could in theory make the payment today and still be good.

      It is doing the same thing as the interest example earlier. You budgeted the $4.28 for the interest and YNAB moved that amount to the "Payment Amount" on the credit card automatically. 

      For those items, you will only be covering any new expenses that you have incurred and not the old debt. To pay down the old debt, you then budget an additional amount to the PNC card itself. 

      In our situation, we have just gotten a better handle on the credit cards. We have a set amount going to the card automatically based on our payday. On payday, I also look at our the balance on the payment column and make payments for the expenses as well. The debt is getting paid down and I don't have to worry about due dates because I am constantly making lots of smaller payments. Once the debt is paid off, I may even continue with the system of paying each pay day as part of the budget review to ensure that we don't fall into the credit card float again.

      Like 1
      • Beige Hail
      • Beige_Hail.13
      • 8 mths ago
      • Reported - view

      I appreciate everyone's input, but I think I'm not expressing the situation clearly enough. This was the first month of a "fresh start" starting January 1st of this year. I didn't set up a budget yet because I didn't have time to find the answers I needed, but I did consistently record all my transactions since that's the hardest part. Now that we're into February and I have a little more time, I'm going back and retroactively assigning a budget to January so I can get things caught up. For every category, I just budgeted the amount that was spent that month.

      As you can see from the screen shot, I made $682.44 in purchases, but could only afford to make a payment of $200. Which leaves that green $482.44 staring me in the face in the payment column. So back to my original question... do I need to reassign the $482.44 to the To Be Budgeted category, or just leave it there? If I get this wrong, it will mess up the amount of money I think I have available for every future month!

       

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      • WordTenor
      • I have the honor to be your obedient servant
      • WordTenor
      • 8 mths ago
      • 1
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      Beige Hail How did you decide you could only afford a $200 payment? If you could budget for all your January spending, and did $682of budgeted spending on your card, then you can afford to send $682. That’s what the budget is telling you. 

      I realize you don’t want to make a second fresh start, but I think one is in order. Budgeting after the fact makes it hard to see how the budget works. If you don’t want to fully fresh start, you can modified fresh start—make sure all your accounts are reconciled, then in February, move all money back  to TBB by changing the budgeted amount to zero and setting available to zero (you can use quick budget to do this.) Then rebudget the month. 

      Like 1
      • Beige Hail
      • Beige_Hail.13
      • 8 mths ago
      • Reported - view

      WordTenor I looked at the available money in my checking account, and saw what bills I still had to pay before the month was out, and made a conservative guess.

      All my data is recorded accurately, and my accounts are reconciled. The data is all good, no need to start over again. I just need to know that you're supposed to do if you make a payment for less then what YNAB says it should be. Move remaining money to To Be Budgeted, or just leave it alone and let it roll over into the next month.

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      • WordTenor
      • I have the honor to be your obedient servant
      • WordTenor
      • 8 mths ago
      • 2
      • Reported - view

      Beige Hail  The budget says you can afford $482 more. It’s not lying to you unless you are lying to it (you’ve given it incorrect account balances, you’ve failed to record transactions, etc.) 

      Looking at your account balance is the last step of making a purchase using your budget. In your budget, all your future expenditures should be budgeted out. If you will owe an electric bill on February 18, it should be budgeted for now. If you will pay your rent or mortgage on March 1 but will get your paycheck on Friday March 6, the money needs to begin accumulating during February. Etc. That way, the money left in  other categories correctly represents the money you have for that kind of spending and the only check you have to do on your account is simply to see how much is in that particular account today. 

      I realize it will sound insulting to tell you to start over and I’m sorry about that, so please take this with the kindness it is meant as my goal is to get your questions fully answered as fast as possible. Your questions show that you have misunderstood how YNAB works from top to bottom, not just how credit cards work (which are admittedly the most complicated part, but they make much more sense when you understand the budget). I suggest you begin again learning how to use the budget.

      I recommend taking a getting started webinar, a 4 rules webinar, and a credit card webinar. They will hopefully help the whole thing click for you and you can probably have the whole thing down pat in an hour and a half instead of having to wait on the forum for answers. You can even watch recordings of the webinars on YouTube if you don’t want to wait until there is a live version; you just won’t be able to ask questions in real time.

      Like 2
      • Beige Hail
      • Beige_Hail.13
      • 8 mths ago
      • Reported - view

      WordTenor I appreciate the honest input, thank you. I can see that I've hit an impasse in trying to communicate my question, so instead of wasting other peoples' time I'll ask in a webinar instead. Thanks.

      Like
  • Beige Hail said:
    that $75 is what I can spare in my monthly finances

    Your budget indicates you can afford another $4.28. Obviously not a make or break amount, but the concept I'm trying to get across is the Available column tells you what you can afford, not the Budgeted column.

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      • Beige Hail
      • Beige_Hail.13
      • 8 mths ago
      • Reported - view

      dakinemaui Thanks.

      Like
    • MsTJ
    • YNAB has given me back my future
    • Believer_in_YNAb
    • 8 mths ago
    • Reported - view

    Beige Hail  I'm sorry, it seems you don't understand the basic concept of how YNAB handles credit cards.  

    Have you spent any time with the training material? Here is a recorded class from YouTube I found on a quick search, https://www.youtube.com/watch?v=nQ0-MHav2u8, there is so much more.

    I have three cards, which are all Paid in Full (PIF) cards, and I use them for most of my monthly spending.  Very seldom do I ever budget money to the cards, YNAB funds my spending automatically, with the money I have budgeted to the categories I spend from.  My payment column equals the balance on the card.  When making a payment, I could send them the total balance on the card. I could pay off the credit card at any time with the amount in the payment column.

    If I had a balance I was paying off over time, that is the only time I would budget money  to the cards monthly.

    I never take any money out of my card categories.  That is money YNAB has put aside to be sent to the card company.

    I highly recommend you take a class or research some YNAB material.  It helps much more than I can, in a post. 

    In your first post, you budgeted $75 to pay down your credit card debt, you also budgeted $4.28 for interest charges.  As YNAB told you, you had budgeted $79.28 to pay on the card and you could have sent that entire $79.28 to the card, as it was all budgeted.

    For your PNC card, you currently have $482.44 available to send to them to pay on your card.  The way you have that money available is when you spent during the month, for budgeted expenses, the money was moved to the card payment.  As is shown in the activity column, you spent $482.44 during the month on the card, it was all budgeted, and moved to the payment column as you spent it.  Don’t move that money anywhere, except to your card payment.  That is it’s job now.

    There is a bunch of educational material in YNAB, stuff you can read, watch, ask questions.  You can even contact support if you have more questions (the ? in the lower right of your budget)YNAB is a change to the traditional way of budgeting.  From your questions it seems you are attempting to use the traditional budgeting concepts to budget in  YNAB.  It will never work.  One of the things I heard in a recording recently is to start using YNAB, you have to forget everything you thought you knew about budgeting. Please take some time to learn what YNAB is teaching.  It will make a world of difference.

    Like
      • MsTJ
      • YNAB has given me back my future
      • Believer_in_YNAb
      • 8 mths ago
      • 1
      • Reported - view

      Beige Hall: I prefer the videos so reference them most often, there are many other ways YNAB delivers the material.

      Here is another great 8 minute video on how credit cards work in YNAB, https://www.youtube.com/watch?v=6_qGkVEAGDs

      There is also a live class tomorrow where you can ask the instructor a question, live, if you need more help. Sign up here: https://www.youneedabudget.com/free-workshops/. Scroll down to the "Master CreditCards with your Budget" class to sign up. If the listed time doesn't work for you, click the drop down menu to find other times the class is offered.

      Like 1
      • Beige Hail
      • Beige_Hail.13
      • 8 mths ago
      • Reported - view

      MsTJ I've been using YNAB for over two years and have read every material I could find on the matter;  I never go to a forum until I've done my homework.  But none of the materials addresses the specific two issues that I asked in this post, which have consistently tripped me up and caused me to have to "start over" again and again because they don't make sense to me. 

      Like
      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 8 mths ago
      • 1
      • Reported - view

      Beige Hail Your specific questions have been answered multiple times. Perhaps you need to re-read everything that has been explained to you in this thread.

      Like 1
      • Beige Hail
      • Beige_Hail.13
      • 8 mths ago
      • Reported - view

      nolesrule Thankyou for the time you've spent dealing with my issue here. It's obvious I'm miscommunicating with the group so I'll be taking my question to a workshop.  

      Like
  • Beige Hail said:
    do I need to reassign the $482.44 to the To Be Budgeted category

    Typically, no. The only time you would do that is if something else was more important than reducing your CC debt. (This is the motivation behind Rule 3.)

    It's understandable that you're struggling with the larger picture of how YNAB is meant to be used. Hopefully the above will make more sense after the webinar. Good luck!

    Like
      • Beige Hail
      • Beige_Hail.13
      • 8 mths ago
      • 1
      • Reported - view

      dakinemaui Thank you.

      Like 1
  • So for future visitors who may have the same confusion about what to do if you pay less on your credit card than what you spent that month, and therefore have a green number in your Payment column. I sat through the credit card webinar and asked my question at the end, and Dave, who was super helpful and didn't accuse me of not knowing how YNAB works, said to just leave it alone and let it roll over into the next month. 

    Like 1
      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 8 mths ago
      • 2
      • Reported - view

      Beige Hail Except that if you are carrying an interest incurring balance, you should make another payment ASAP using that available money, rather than wait till next month, because it's costing you money in interest every day you wait.

      That was the point others were trying to make, and that context was likely missing from the question you asked in the Webinar.

      Like 2
      • WordTenor
      • I have the honor to be your obedient servant
      • WordTenor
      • 8 mths ago
      • 2
      • Reported - view

      Beige Hail  Also that question bears almost no resemblance to the one you asked here, which is “why do I have $4 left over when I paid the $75 I budgeted to the card?” At which point Dave probably would’ve patiently explained to you how YNAB works. 

      However you can enable support access to your budget. Apparently now we all are paying for one-on-on tutoring with the cost of this software, so you can have someone cheerily hold your hand while you realize that they are saying exactly the same things and everyone here is just trying to help you. But perhaps one on one it will feel less affronting. Good luck. 

      Like 2
      • satcook
      • satcook
      • 8 mths ago
      • Reported - view

      Beige Hail You can definitely let it roll over to next month.  Or you can pay it now.  The money is available!  That's what we are trying to get you to understand.  The $442.18 exists!

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  • Beige Hail said:
    I sat through the credit card webinar and asked my question

    You'll have to forgive the rest of us who see beyond the single question you posed. As the saying goes, "you don't know what you don't know," but we saw a glaring lack of understanding that would cause problems later.

    It's your choice to take that as criticism or a learning opportunity. It was certainly meant as the latter.

    Like 7
    • MsTJ
    • YNAB has given me back my future
    • Believer_in_YNAb
    • 8 mths ago
    • Reported - view
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      • Beige Hail
      • Beige_Hail.13
      • 8 mths ago
      • Reported - view

      MsTJ Thank you.

      Like
    • QC
    • HaplessFinanceProfessional
    • Queenofcoin
    • 8 mths ago
    • Reported - view
    Beige Hail said:
    just leave it alone and let it roll over into the next month. 

     This would effectively mean that the credit card is never paid off as your unpaid interest charge simply incurs interest every month.

    With a credit card that carries a balance (debt) that you don’t intend to pay straight away you have to budget for your debt payment, interest charge and purchases. At some point during the month, you have to pay it all. 

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  • It turns out that the correct answer to my second question (what to do with the green $482.44 in the credit card payment column) was to zero it out at the end of the month by moving it to the To Be Budgeted category.  For anyone who's interested, read on to see a summary of why that was the correct thing to do. Otherwise, I want to thank everyone who's contributed their time and efforts in helping me sort through this. 

    1. I "started over" with a fresh budget in January, but didn't actually budget for any items right away since I didn't have time to sort through the lingering questions I had. I did, however, record all my transactions faithfully, knowing that I would be retroactively setting the budget later once I got my final questions answered. I completely understand that this isn't the way YNAB was designed to be used. But it's a flexible system and it can handle it.

    2. I freelance, so my income is unpredictable. January was a rough month and when it came time to pay my credit card balance, even without the benefit of a working budget in place, it was obvious that I couldn't afford to pay the full balance from the previous month, so I only paid $200 out of the $682.44 in purchases I had made on the card in January.

    3. Once I got a week into February, I knew I needed to resolve my YNAB questions once and for all and finally get the budget up a running, so I went back to January and retroactively set up a budget for that month by looking at the activity column for each category and putting in the opposite number in the budgeting column. So if Groceries showed activity of -$100, I put $100 in the budget column.  This created the green $482.44 in the credit card payment column for January, which didn't make sense to me, since it implied that the money was available for spending, when in reality it wasn't (and this became the distraction that many of you here kept focusing on.... "you obviously have the money, just pay that stupid card and the green number goes away!")

    4. Going into the workshop, I had assumed that I'd get a chance to actually talk to the instructor to explain my situation... I didn't realize that the only communication was via text chat. So I didn't have this elaborate step by step process typed out. I only had time to quickly cobble together a quick summary: "If you happen to pay less on a credit card than you made purchases on in a month resulting in a green number in the payment column, what do you do with that number? Leave it alone, or move it to the To Be Budgeted category?" He said just leave it alone and it will roll over into the next month.  Not his fault, he didn't have the larger context.

    5. But after doing that and then working on February's budget, it was obvious that the numbers were off, and then I finally understood that in this situaton the green number needed to be moved to the To Be Budgeted category, because in real life, that's what I had done! I couldn't afford to pay for all the credit card purchases I'd made in January because that money had to be used for other things. So that's when the lightbulb went off in my head.

    6. By zeroing out the green number, that put the budget for that card in the negatives for that month, which I guess is how the incurred debt is indicated? 

     

    I realize that if I had typed out this entire scenario to begin with, there may not have been so much confusion. Ironically I was trying to simplify things by giving as little information as was necessary. 

    Thanks again.

    Like 1
      • WordTenor
      • I have the honor to be your obedient servant
      • WordTenor
      • 8 mths ago
      • Reported - view

      Beige Hail 

      Glad you finally figured it out. Good luck next month. 

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      • WordTenor
      • I have the honor to be your obedient servant
      • WordTenor
      • 8 mths ago
      • 1
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      For whatever it’s worth, my advice for the whole picture is exactly the same as the partial picture, and is basically what you did—a modified fresh start in which you reconcile the accounts and move all unspent money back to TBB so that you can budget February. 

      You are not obligated to use YNAB to improve your financial position. But you can use it for that, and it’s a very effective tool for it, so forgive us if we get a little zealous about trying to help people optimize it for that purpose. 

      Like 1
  • Beige Hail said:
    which didn't make sense to me, since it implied that the money was available for spending

    It's available to pay the CC bill, just like the money in the Electric category is intended to pay the electric bill.

    As I said above, if you need that cash to pay for upcoming events things that are more important to you than decreasing debt, then yes, reallocate it wherever needed. This is, of course, not a long-term strategy.

    Like 3
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