Handling credit card interest

Hi everyone, What tips do you have for handling credit card interest payments? I get confused each time I try to dig into it and create a solution. Has anyone found that creating a separate budget category is helpful.... Or treating it like a separate account somehow? 

 

Thanks!!

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  • Categorize it to "interest and fees" and leave that category overspent. Budget directly to the card payment category to pay the card down. That's it. 

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      • VanillaCottage
      • Believer in the life-changing magic of YNAB4 - since 2013
      • VanillaCottage
      • 2 yrs ago
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      WordTenor WordTenor why do you leave the category overspent?

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      • WordTenor
      • I have the honor to be your obedient servant
      • WordTenor
      • 2 yrs ago
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      VanillaCottage Because it makes the budgeting aspect of debt paydown dead simple--you just budget for the amount you are planning to pay down in the card category, and then you pay the amount in the card category when the due date comes. There are other ways to do it, but functionally there isn't any difference between budgeting for the interest in the interest and fees category and budgeting for it via the card category, so you may as well make one budget entry instead of two. If the yellow overspending notification is distracting, one can always WAM from the CC Payment category. 

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    • WordTenor I guess if it works for you that's good but I budget separately for my interest so that I know what I have budgeted for CC payments actually reduces the debt by the budgeted amount.

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      • WordTenor
      • I have the honor to be your obedient servant
      • WordTenor
      • 2 yrs ago
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      Aquamarine Storm (67697f3db38d) I don’t actually have this problem; my cards are PIF. I haven’t paid interest in several years. But there’s no software reason to perform two budgeting actions. If your interest is $45 and your snowball is $300; budgeting $345 to the card payment category accomplishes the same thing as budgeting it in two places. Further, it makes snowballing simpler to know “I am throwing amount x at this card this month.” But if it feels good to see the category go down, stick with it. Efficiency need not always be the end goal. 

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  • I budget for credit card interest each month, so I'm paying both interest and my minimum payment (plus snowball).  For my monthly minimum credit card payment, I budget directly to the credit card.  For the monthly credit card interest, I budget to a separate category called "Toxic Interest." 

    It's an expense like any other recurring monthly expense.  I created a recurring future transaction for credit card interest on the day it usually posts, using last month's amount as my estimated amount and then adjust when I have more information.   When it posts, my Toxic Interest "available" balance goes down and my "available" balance to put towards the credit card goes up.

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  • I do what Dazed does as well!  It's actually very exciting to see that as you continue to pay your debts down that you need to budget LESS in that category as time goes on.  For me 9 months ago I had to budget $300/month so that I was making Debt Repayment on 1 card and then Minimum+Interest on the others; and now I only need to budget $100 per month (which is more, just in case.)  

     

    Also- it's interesting to see that over the course of several month (for that gosh darn last card you need to pay down) that paying the Minimum+Interest does whittle away a small amount to that card and that every month your Minimum required payment goes down by a few dollars each month.  

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  • Yeah, I'm still having trouble with this...Say I a single transaction that is a CC payment of $300. It is marked as a Payment from my checking account.  So my checking account has an outflow of $300 and my CC has a Inflow of $300. But my CC also shows a outflow of $50 for an interest charge. That interest was paid as part of the original $300 payment. how do account for the Interest?

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  • I handle CC interest by having an interest category for each card I owe money on.  Most of my CC payments are due at the beginning of the month so I have a set amount I can afford to pay on them all. Once the interest charges roll in around mid month I just record them in their respective interest categories and let them stay negative. The interest is then rolled into the next month's payment. I know this won't work for everyone but I have a pretty high debt load  and personally don't have enough money every month to make the payment plus the interest.

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