Returns on Credit Card

I watched the video tutorial on why credit card categories 'turn red' and one reason was related to returns. If I understand it correctly, I purchase $100 of clothing, the statement is due and I pay $100. I then return $40 and now have a red bubble for credit card. The fix seemed to be assigning the return cash to the credit card rather than the clothing category. However, then I am not accurate in tracking how much I spent on clothing.  What am I not understanding?

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  • I make the return transaction have a category of "clothing" instead of return to the credit card. And then the clothing category is correct & I believe the cc balance is too.

    Like when I took a cash back reward I assigned it to my "new phone" category to cover the cost of the new phone. 

    I believe it might be a little trickier if you bought the item one month and received the refund the next. But someone smarter than me can hopefully chime in on that!

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  • Hi, the red category is simply telling you that you have a $40 credit on your credit card. That means if you go and buy something for $40 with your CC, you don't need to put aside money for it to pay later, it is actually a cash purchase. If it annoys you, you can categorise the $40 return to clothing and then move the money (in the budget) to the CC payment. Simply saying this $40 will go towards the payment of the CC this month (which typically will happen automatically as it will reduce your CC statements by $40 compared to your purchases this month). 

    Like 1
  • Hi Powder Blue Octopus !
    I'm glad you asked about this, and I'd love to clarify. 

    As you make purchases on your credit card, cash is moved from whatever regular category you assigned it to (let's say, Clothing) and it's added to your Credit Card Payment category. This sets that money aside for payment. 

    If you then use that cash to pay your card off, the cash has officially left your budget. Your Credit Card Payment category is reduced. 

    Later on, if you receive a refund for that purchase and categorize it back to the Clothing category it's not considered new money. It feels like new money, but it's actually money that already went towards paying down your credit card. So in order to put that money back into the Clothing category it needs to come from somewhere. That somewhere is where it last was - the Credit Card Payment category.

    This is likely why you noticed a red negative amount in your Credit Card Payment category.

    Moving forward, you'll either want to:

    1. Categorize returns as Inflow: To be Budgeted  (like you ended up doing). That reduces the account balance, and gives you control over where you move the "extra" dollars in the Credit Cards Payment category since you may not need them for the payment if you always pay in full.
    2. Categorize them back to the category anyway (if you want to keep an exact record of your spending), but just be aware of what can happen and make adjustments before your next payment goes through.

    To make this easier, once a month -- preferably right before you make a payment to your credit card -- check to see how much you have Available in the Credit Card Payment category. If it's more than you need for your payment move money out and if it less money than you need - budget more cash there.

    I'm going to mark your question as answered, but feel free to tag me if you have any questions about this!

    Like 2
    • Janelle at YNAB I'm having an issue with returns.  If I process my return like you stated in option 2, the money flows from credit card payment to the category, no problem.  However, if I try to categorize like in option 1, the money does not flow to Inflow: To be Budgeted.  It stays in the credit card payment column.  Not sure if this is a bug or what.  Thanks, Justin

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    • Justin Dorough   Mine is doing the same thing.

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    • Superhero Marvin ...well, at least I'm not crazy.  I created a "RETURNS" category and place the funds there for re-budgeting or return it to the original category.

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 2 yrs ago
      • Reported - view

      Justin Dorough Superhero Marvin No, that's how it works. Just like with taking credit card rewards as cash back on a card and categorizing as TBB. It'll apply it against your current credit card balance (even if you don't need to). It will only show up in your TBB if it takes your credit card balance into positive territory. So if you want it to actually be used as TBB you have to unbudget it from the CC payment category.

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    • Justin Dorough ....Log the return transaction as "To Be Budgeted" just like you did..... But after you do that, you'll also need to click on the very right column (the "Available" column) on your budget screen, and "move" the return/refund amount into "To Be Budgeted" so that it appears up top. Hope this made sense.

      Like
  • I wish YNAB could fix this some way. For us, the issue is budgeting correctly, making sure we know how the money was spent. So if I bought a sweater for $40, I spent $40 of my clothing budget. If I return it next month, I should have a negative $40 in my clothing budget so over a perdiod of time the money spent on clothing is $0. 

    I realize that the money has been sent to the credit card company, however, I am as concerned with how much I spend in categories as where every dollar is every month. 

    If this does not makes sense, feel free to email me! [email protected]

    Like 6
  • I mostly understand the explanation Janelle made, but this is a good example of what I think is a less than ideal functionality of YNAB. Ever since I added a credit card to my budget, things have become really confusing and sticky to deal with, this being one example. But to take this example, our two options are:

    1) Categorize returns as "To Be Budgeted," which yields the problem of inaccurate Reports tracking (in your example, it would mean a report that you spent more money on clothing than you actually did). This is also not how you'd work with cash, and the whole point and philosophy of YNAB is to treat your credit cards no differently than cash.

    2) Categorize returns as the original category for accurate tracking, which yields the problem of Red in your budget and an "Overspent last month" number in the next month, when in reality, things don't end up really being Red or "spending more than what is in your budget".

    Either way you go about it yields it's own problem.

    YNAB doesn't really let you think of credit cards like cash and treat them that way. Another example is how overspending in a category with credit makes the category Orange – no different from an un-met monthly goal – instead of Red, to show that you've actually spent more money than you own, just like cash.

    Like 6
  • Turquoise Major said:
    YNAB doesn'treally let you think of credit cards like cash and treat them that way

    It certainly doesn't.

    But you can force YNAB to treat credit cards like cash by selecting the "Checking" account type when adding the account. There are almost no downsides (bank import still works!) and it makes all the head-scratching behaviors you just described melt away.

    Like 2
    • bret s...solution!? Thank you for this tip! I'm just trying to work this out in my head. What would be the "almost" part of the no downsides? Perhaps it's something about tracking payments? How would that work?

      I'm going to give this a shot for sure.  If I download a .csv of my transaction history from my credit card bank holder, do you know how the credit card payment transactions will work when I import them into YNAB?

      Like
      • HappyDance
      • YNABing consistently since 2014
      • HappyDance
      • 2 yrs ago
      • 3
      • Reported - view

      Turquoise Major 

      One downside is that it discourages the ability to carry debt on your credit card.....wait a minute.....maybe that isn't a downside afterall.  🙂

      Like 3
  • Turquoise Major said:
    What would be the "almost" part of the no downsides? Perhaps it's something about tracking payments? How would that work?

     Yes, exactly.

    If you use your credit card as a debt instrument -- i.e. you need to manage and payoff long-term debt -- then you should probably stick with YNAB's default approach. It's the easiest way to represent debt inside your budget.

    But if you always pay your card in full, then you really don't need YNAB to help "track payments." A payment is just like any other account-to-account transfer; it's a budget-neutral event.

    If you're considering converting an existing credit card account in YNAB to checking, I believe the recommended workflow is something like:

    1. Rename credit account to something like "Credit Card - OLD"
    2. Create new credit account, setup as "Checking"
    3. On the "Accounts" view, select all transactions from "Credit Card - OLD" and do a mass "Move to Account..." operation. to the next account. May take some time depending on the volume of data.
    4. Once you're happy with the results, remove OLD account.

    Regarding imports, I find that YNAB generally screws up account-to-account transfers for all account types (not just credit card payments) and records them as (non-transfer) outflow / inflows.  But that's easy to fix during the import / approval process. 

    Like 2
    • bret Just made the switch and it worked perfectly. All of my credit card balance payments were converted to transfers from my real checking account. Will see how this works out from here on out, but I think this fixes almost every gripe I had with the nYNAB! Many many thanks to you for the tip.

      Like 2
    • bret 

      Thank you! I never thought about doing this. But I make returns on my credit cards 2-3 times a month and it's SO annoying to try to figure out why my card payment and card balance categories don't match up. I don't want to waste my time on that stuff. It sometimes takes 30 minutes to figure out the issue and reconcile.

      I pay the cards off every month. If I ever need to start racking up debt, I guess I'll move them back to a credit type account.

      I just converted my accounts and all seems to be working fine except one of my old accounts is failing to delete. I finally "closed" it (not deleted) from the mobile app but now the payment category is still there and doesn't seem to be a way to remove it. I suppose I could just hide it.

      Regardless, this is such a relief.

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      • HappyDance
      • YNABing consistently since 2014
      • HappyDance
      • 2 yrs ago
      • Reported - view

      Spring Green Lobster 

      check in the register of that stubborn account to see if there are any outstanding entries. Even a zero sum starting balance or split entry will stop you from deleting the account.  If you find something and delete it, that should allow you to delete the account.

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    • bret  - (and others) I'd like to try this CC fix that you propose, but am new to YNAB and having a bit of trouble.  After your step one, do you need to "Disconnect" the existing CC account?  I ask because, I assume for step two you are essentially reconnecting your CC account but setting up as a "Checking" account?  YNAB will, understandable, not allow me to set up my CC account a second time.  So I'm clearly missing something but not sure exactly what.  Thanks in advance.

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    • Hi Orange Vacuum !

      That's exactly right. You'd have to disconnect the old account before you're able to connect the new account. We don't suggest setting up credit cards as checking accounts. However, as you can see, some users prefer it. :)

      Like
  • @bret Finally a solution! I've been banging my head against the wall on this for months.  I treat my CC like a debit card (pay off every month) as well, so this is a great solve.

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  • So... according to this fix, if we make the credit card an account like a checking account, we can make it act like the old YNAB (which was SO useful to me) and it'll stop all the "auto" payment category?  This would be so great for me if that's how it works!

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  • I followed  bret 's instructions and the only problem I had was that my "to be budgeted" amount then showed a massive deficit and there was a starting balance of the new CC account (now set up as a checking account). Once I zeroed that out, things seemed to line up. Is this part of the process as well or just some weird situation I ran into?  It seems like it was duplicating expenses with that starting balance, right?  

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  • bret said:
    If you're considering converting an existing credit card account in YNAB to checking, I believe the recommended workflow is something like: [steps including a mass move of transactions]

     Since this thread was linked from a recent situation, I'll point out that a balance transfer is a safer option than a mass move of transactions. Users are often not in paid-in-full status -- precisely why the stock CC seems so confusing for them -- and simply transplanting transactions will wreck their budget and introduce confusion.

    I feel a better approach in most cases (i.e., more than a few weeks of use) is to:

    1. Achieve paid-in-full status by making the CC Payment category match the account balance AND eliminating any red from the budget (TBB or categories). Note, if you can't do this, you are riding the CC float (or worse) and should NOT switch away from the stock CC handling!
    2. Rename the old CC account and create a new checking account.
    3. Make a "payment" / transfer from that new checking account to the old CC account for the entire balance.
    4. Close that old CC account.
    Like 3
  • I'll be honest: I don't see the issue here.

    As Janelle (YNAB support) says above: if you want the total expenses in a given category to be accurate (so you can track spending), then when you get a refund on your cc:

    1. allocate it to that category;

    2. move the refunded amount from that category to the cc's budget line; and

    3. if the money available for a cc payment now exceeds your cc balance, then move the excess to "to be budgeted."

    Done. Works for me—and makes sense, too.

    Like 1
  • I am so confused with this thread.  For the first time - I had a refund on my credit card.

    So, let’s say I spent $150 on Clothing.  $150 was transferred to my Credit Card Payment and then I paid the bill.  Then I returned $100 of the Clothing.

    Initially, I had the “credit” on my credit card going to Clothing.  But I’m not quite sure what else I need to do here and this thread has totally confused me.

    If I have a credit on my credit card - they are not going to cut me a check and I’ll be able to deposit it in my account thus funding my Clothing category back to what it should be.

    But, now I’m continuing to spend on my credit card.  From other categories.  Let’s say I have no more Clothing charges.  So ..... I’m lost.  I know this is just a mental block, but I can’t get this situated in my head.

    If I keep charging other things, then obviously whatever I charge $ comes from those categories to fund the credit card payment, but I’m still lost on how the refund to my credit card is making it’s way back to my Clothing category.

    Ugh.

    I love YNAB, but some things I really struggle with.  I’m not getting this.  Please help.

    Like
      • dakinemaui
      • dakinemaui
      • 11 mths ago
      • 2
      • Reported - view

      Silver Flute When you get a refund, you don't have to pay the CC as much money. Assuming you were already going to pay off some previous purchases, that money you were going to send the CC can stay in your account. Therefore, the credit magically moved without any physical transfer.

      Like 2
    • dakinemaui  I understand how things would work if I bought something and then returned it and hadn't yet paid the CC bill.  But in this case I did.  So now I have a credit on NEXT month's CC bill, which has other charges on it from other categories.

      Do I have move some money out of the CC payment holding area over to Clothing?

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      • dakinemaui
      • dakinemaui
      • 11 mths ago
      • 1
      • Reported - view

      Silver Flute is your YNAB account balance positive? If so, then TBB would have increased by that amount. Use those funds to cover the "overspending" in the CC Payment category.

      If you already put those funds elsewhere, then you shouldn't have done that. 🙂 Move funds from your lowest priority category to cover.

      Like 1
      • dakinemaui
      • dakinemaui
      • 11 mths ago
      • 1
      • Reported - view

      Silver Flute Also, a positive CC account is effectively a cash account. Think of it just as you would your checking account.

      Like 1
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