managing low-interest debt

I am entering into YNAB with two sources of debt. One is a cc balance of $5000. It is at 0% for the next 6 months, and all new purchases are also 0% for the next 6 months.

The other is a HELOC which is about 9k, and 4.5% interest.

My plan is to transfer the CC balance to the HELOC when the 6 months are over. (I was originally going to transfer all my debt to the HELOC but then my bank offered me the 0% offer for the amount I could transfer from other cards).

I am prioritizing learning to live without credit card debt at all. I have 'gotten out of debt' so many times. So, I am trying to learn about sustainability and staying within a budget by planning for emergencies and true expenses.

I've decided to build up my emergency fund, car repair fund, and home repair fund,  before I get more aggressive about paying down debt.

Right now, that means I can put about $150/month towards debt. Once I have my funds in order I am thinking I'll be able to pay about 350 towards debt, plus any 'extras' that come my way. This should be in the next 5 months or so.

My question is this. I love the YNAB feature of calculating my cc payments based on what I'm budgeting. 

For the next six months, do you think I should make those payments to the 4.5% HELOC loan and let the CC balance build up? I would save (a small amount) on interest that way.

On the other hand, it seems like there is a kind of conditioning that I hope to build on of just . . paying off charges as I make them. Plus there is the benefit of just keeping things simple and paying the money to the card where I made the purchase.

What would you recommend? Thoughts?

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    • casner
    • Now retired, and figuring out transitions
    • casner
    • 7 mths ago
    • Reported - view

    If you are using the YNAB CC account, it should automatically allocate the amounts of purchases made on the card to the CC Available, which should be used to keep the CC balance in bounds. (And help your credit rating.) Then you can decide how much to budget for additional CC balance reduction vs. HELOC balance reduction.

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    • casner I guess my question is about implicitly transferring debt to the 0% rather than 4.5% balance by paying my cc available amount to the HELOC instead of to the card where the expenses were actually charged . . 

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      • casner
      • Now retired, and figuring out transitions
      • casner
      • 7 mths ago
      • 2
      • Reported - view

      Ivory Storm When you do a transfer from the CC to the HELOC, you may show a negative Activity and/or Budgeted for the CC. Be sure to check that the CC company gets its "minimum payment" every month, or the 0% may suddenly jump to 25%.

      Like 2
  • Ivory Storm said:
    do you think I should make those payments to the 4.5% HELOC loan and let the CC balance build up?

    Yes. The "good habit" is that all purchases are budgeted. You will then reallocate from the CC Payment category to the HELOC Payment category -- also a good habit, ala Rule 3, since reducing that debt is a higher priority than reducing the 0% debt.

    Like 1
    • dakinemaui thanks for your many helpful contributions on this forum.

      i just did this for the first time and can I run it by you to see if I did it correctly?

      I wanted ynab to show that I had made "payments" (I love the balance payment tracking feature connecting to my budget and want to keep it relevant), So, in real life:

      - I made a payment to my cc of the minimum payment due, and recorded it -- all clear as usual in YNAB and in real life.

      - I then noted the balance due to the CC according to YNAB, and paid *that* balance to the HELOC instead (in real life)

      - in YNAB, I recorded the payment made to my HELOC (to bring the checking account and HELOC balances into line)

      - Then I recorded the payment "made" to my credit card (So YNAB would show I paid that amount)

      - But I then did a reconciliation adjustment to my credit card so that it would show the actual balance remaining, not the phony one. 

      this seems kind of convoluted but my head was spinning figuring out how to record the transactions and get ynab to line up with real life . . does this seem right?

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      • dakinemaui
      • dakinemaui
      • 7 mths ago
      • Reported - view

      Ivory Storm Transactions should mirror real life -- whatever will show up on your statement. I didn't quite follow what you did, but here's my take:

      1. Pay the minimum to the CC and record that transaction. This decreases the CC Payment Available by that same amount, but presumably there are funds remaining in that category.

      2. Reallocate the remainder of funds from the CC Payment category to the HELOC payment category.

      3. Send the HELOC the entire contents of it's (now updated) payment category and record that transaction as well.

      Edit: my impression is both payments were made from Checking.

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    • dakinemaui I feel really dense but I don't know what this means: 

      2. Reallocate the remainder of funds from the CC Payment category to the HELOC payment category.

      How does that translate into a transaction? 

      I did not budget any money to CC payment, other than the money that intrinsically gets budgeted to it when I spend money on the CC that was budgeted for the month . .  so on my budget screen, there is no reallocation between categories that makes intuitive sense to me . . 

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

      Ivory Storm ps: I'm glad you've found things helpful. I appreciate your kind words.

      Like 1
  • Ivory Storm said:
    Reallocate the remainder of funds from the CC Payment category to the HELOC payment category.
    How does that translate into a transaction? 

     It doesn't. The budget is the plan for your cash. This changes the PLAN from "send this much to the CC" to "send this much to the HELOC". Then step 3 is execute the new plan, causing a transaction.

    Like 1
  • Ivory Storm said:
    other than the money that intrinsically gets budgeted to it when I spend money on the CC

    There is cash backing every budgeted purchase on the card. Ordinarily you would pay off the debt incurred for those purchases, which is why YNAB helpfully (automatically) gives those dollars the new job of Pay off CC Debt.

    However, you would rather those dollars had the job of Pay off HELOC debt, so use the Move Money tool to reassign those funds to the HELOC Payment category.

    Like 2
  • My plan was to send only $50 to my CC so that is how much I budgeted at the begin of month.

    From my other budget categories, I also spent $500 of money that was budgeted, on my CC.

    Instead of paying the $550 to the CC, I sent $50 to the CC and $500 to the HELOC

    If I now  say in my budget that I plan to pay $500 to my Heloc, won't my TBB now show up -500?

    The only way I can imagine to not have my TBB show up negative, would be to leave the little payment balance running in the credit card - so it wouldn't show that I made a $500 payment (because I didn't, to that card, in real life). 

    But then, next month, when I spend $320 on the CC, I want it to show me that $320 is what needs to be routed out of my checking account (to the HELOC) . . not $820 . . 

    basically I want that CC payment button to function to tell me how much to route out of my checking account, instead of telling me how much to route into the CC. . . 

    or just a way to keep it all tidy if I am paying off my balances but not to the 'correct' card

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    • Ivory Storm OK I have never used the Move Money tool . .I will fuss around with that.

      i worry I am adding too much complexity for my brain to handle when I am also at the same time fundamentally changing my paradigm about what budgeting is lol. but thank you for your patience and helping me step this through piece by piece . . 

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      • dakinemaui
      • dakinemaui
      • 7 mths ago
      • 2
      • Reported - view

      Ivory Storm The Move Money tool just adjusts the budget values of two categories at once. (Access it by clicking on the Source category Available amount.)

      It decreases the budget value of the source category (possibly negative), which would ordinarily increase TBB. However it also increases the budget value of the destination category, putting TBB tight back where it started.

      You can make these offsetting adjustments manually, but the Move Money Tool ensures the amounts match.

      Like 2
  • I got it! Move Money tool, brilliant! Thank you so much, I undid all my previous phony transactions and reconciliations and used the move money tool as you said to. Neato!!

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