Living on the Float
Reading about this was really eye opening. We pay our credit cards each month, but I had t noticed how almost every expense had slowly migrated from direct withdrawals from our checking account to a credit card purchase. We pay them off each month, but have little left over until next payday.
we are now migrating off of the cards - back to the bank to get ahead.
thanks!
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Using YNAB, you can just simply get off the credit card float through budgeting with no impact to your cashflow. Switching back to paying everything out of your checking instead of the credit card can actually put you in a dangerously precarious position.
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I'm in the UK and there is more of a culture here of viewing credit cards as risky, ie that they encourage irresponsible spending. 'Good' reasons for spending on a credit card are here considered to be:
to separate expenses that will be paid back by someone else, eg business expenses
to take advantage of the payment protection, eg if you pay a big purchase upfront and the supplier goes bust.
I get that from a budget point of view it makes no difference, but your own mentality is equally important.
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I know that for some people they prefer paying through credit cards and paying it off each month - and that isn't necessarily a bad thing.
To me though, it has been a much more 'freeing' thing to switch all my purchases to coming directly from my checking account. There are fewer accounts to reconcile and I'm not always feeling like I am playing a shell game of where I have to send my money each month.
Also, I tend to overspend on credit. It has happened every time I completed paid off cards and then tried to use it 'just a bit and pay it off'. Even with how YNAB shifts money from categories to pay back credit card spending - the temptation will always still be there.
The only downside I have seen so far (in the US) is that my credit score dropped 12 points after I had a month of no open accounts with revolving spending. I'm still in the high 700s so I am not terribly worried about it but completely cutting off using credit can have that effect.
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Peripherie Everybody is different and if you're going to spend more on credit then absolutely quit using it.
I pay everything I can on my credit cards and yet credit has absolutely no affect on my spending. Only my YNAB categories guide my spending. How much I have available on credit cards never enters the equation. There's no shell game for me because everything is backed by cold hard cash in my budget accounts. In fact, I'm using the "classic" YNAB credit card handling where there is no holding category. As soon as I spend, those budgeted funds are considered gone. This system for me is the ultimate in freedom.
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Getting off the float is one extra month of buffer between you and not being able to pay your bills. I'm glad to have done it.
