Move budgeted money to line of credit
This is a simplified version of my situation:
I have a vaction budget line with $2,000 budgeted for use next year.
I have a home equity line of credit (HELOC) with a balance of -$10,000, which I am paying down regularly.
The "cash" for my vacation budget is currenty sitting in my checking account earning 0% interest. My HELOC is costing 5%. It seems to me to make sense to pay the $2,000 into my HELOC account to save 5% on $2,000 of the balance, and then take it back out next year when I go on vacation.
How do I account for this in YNAB? Will my vacation budget just sit at $0 for a year?
Is the HELOC a budget account, a tracking account, or completely outside YNAB?
If it's in the budget: transfers between budget accounts don't affect the budget at all. The money would stay in the Vacation category.
If it's either of the others, then yes, the transfer will look like spending. You won't have any Vacation money in the budget until you draw it back out of the HELOC.
You would take the move the $2000 from the vacation budget to the credit card category. Then make the payment. Your vacation budget will be zero unless you start to budget additional funds. When it is time, if you choose to use the HELOC, then you would use it to pay and the balance on the HELOC would increase again.
We did a similar thing when taxes were deferred for payment. We took our taxes and paid down one of our LOC. When it was time to pay the tax bill, we used the LOC to pay it. It did save us some interest over the four months. If you are going to have it for a longer time, it would be worth it.
There is a way to set up a Line of Credit to store budget money, but it involves setting up dummy accounts and categories. I don't remember the exact details, but hopefully dakinemaui can come along and point you to the instructions on how to do it, since I currently can't find them.
Just realize that there is risk in storing budget money in a HELOC during a financial downturn, because as shown in 2008, banks can limit your re-draw ability, and lower your credit limit.