Is it best to use a debit card each month or pay off a credit card in full each month for points?

Hi! I've left ynab multiple times because of confusion around how to manage credit card transactions and payments. We charge almost everything to our credit card for points and pay it off every month, but it would be SO much easier to just use our debit card. 

However, if we do that, we'd be giving up points that we use for travel each year.

I'm just curious about people's thoughts on this? 

Thanks!

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  • I use a credit card for 3 reasons. 

    1. Credit card rewards

    2. Delay between purchase and payment due allows me to accrue interest. 

    3. There's a layer of fraud protection between your payment instrument and your bank account. If fraud happens there's no affect on your account and reduced stress in having to deal with it. 

    Reply Like 9
      • Ben Khaki Storm
      • YNAB book topics online: https://support.youneedabudget.com/r/q5w48j
      • Khaki_Storm.1
      • 2 mths ago
      • 1
      • Reported - view

      nolesrule I only use credit cards, now, for #3. In fact, I pay them almost weekly because I don't like the idea of debt. There are rewards on my card, but I never see them, they go to charity, it something I selected when I got the card.

      Reply Like 1
      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 2 mths ago
      • 1
      • Reported - view

      Ben K. I see the rewards as fungible money, so it doesn't matter if the rewards go to charity or if I make charitable donations. Though I guess if you itemize on your taxes it would make a difference.

      Reply Like 1
      • Ben Khaki Storm
      • YNAB book topics online: https://support.youneedabudget.com/r/q5w48j
      • Khaki_Storm.1
      • 2 mths ago
      • Reported - view

      nolesrule nope, I don't keep track of it at all. Maybe, there's a report I get and ignore. 

      Reply Like
    • Ben Khaki Storm
    • YNAB book topics online: https://support.youneedabudget.com/r/q5w48j
    • Khaki_Storm.1
    • 2 mths ago
    • 2
    • Reported - view

    I'm with you, I was a big fans of the debit card, until it was used to buy $200 worth of food from a Tim Horton's in Canada!  Then there's all the local stories of card skimmers at gas stations, grocery stores, etc. We're credit card uses now because of the fraud protection. That's it. If I could get the fraud protection with my debit card, I'd drop the credit cards right now.

    Reply Like 2
    • WordTenor
    • Your lieutenant, when there's reckoning to be reckoned.
    • WordTenor
    • 2 mths ago
    • 5
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    I would just learn more about how to handle the credit card category. People who run into lots of problems with it often fall into one of these groups: 

    1. They are paying the card overly-frequently and thus frequently run into the edge cases where they pay more than is technically owed on the card

    2. They did not budget for the full starting balance on the card but proceed to pay it in full each month

    3. They did not budget for the full starting balance because they are on the credit card float

    If you pay your card off every month, the category should always be equal and opposite to the penny to your card's balance. Any discrepancy between these numbers should be corrected in the budget categories, not in the credit card categories. 

    Reply Like 5
      • Ben Khaki Storm
      • YNAB book topics online: https://support.youneedabudget.com/r/q5w48j
      • Khaki_Storm.1
      • 2 mths ago
      • Reported - view

      WordTenor I am paying weekly and that crazy balance is off again, not much 1.71, but it's off all the same. I'm not paying more than I owe. 

      Reply Like
      • adriana01
      • adriana01
      • 2 mths ago
      • Reported - view

      Ben K. Have you seen the list of different things that can cause the budget category balance not to match the card balance?

      Some of the most common are overspending in a category that you used the card on (might not have been due to a transaction on the card, might have been last month) or refunds (should be categorized to original category) or cashback/rewards (should be categorized to TBB 

      Reply Like
      • Ben Khaki Storm
      • YNAB book topics online: https://support.youneedabudget.com/r/q5w48j
      • Khaki_Storm.1
      • 2 mths ago
      • Reported - view

      adriana01 I've not seen a full list. I experienced the refund issue last month.

      Reply Like
      • adriana01
      • adriana01
      • 2 mths ago
      • 2
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      Ben K. Here's a link to one of the times it's been posted. It boils down to, if you know your accounts are properly reconciled and you haven't overspent any categories, and are a PIF card user (not on float), you will need to move money around if the credit card payment available category doesn't match the card balance due to one of these situations.

      https://support.youneedabudget.com/t/m2gfa1

      Reply Like 2
      • Ben Khaki Storm
      • YNAB book topics online: https://support.youneedabudget.com/r/q5w48j
      • Khaki_Storm.1
      • 2 mths ago
      • Reported - view

      adriana01 Thank you! That's helpful to know. Nope, we are not on the float. We were getting close, then we called and had the limits lowered. Does that show lack of self control or intentional self control, I can't say.

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

      Ben K. Almost certainly, you have missed an overspending somewhere. Perhaps under a collapsed group, perhaps just overlooked in the midst of underfunded goals, perhaps in last month's area after an import brings in a straggler transaction.

      Sadly, there is no single, reliable indicator of current-month overspending anywhere on the budget screen. Ideally, summarizing both cash and credit overspending and would jump/focus to the problematic category when clicked (uncollapsing or unhiding if necessary). If you think that would be useful, I suggest an email to YNAB support with your thoughts. 

      Each CC account register will show if there's overspending on that card in the current month, which isn't very useful if it's not in the current month. As a workaround, you can check the CC Payment Activity Detail for prior months. The top two lines (Spending and Budgeted Spending) will differ if there's overspending that month.

      Reply Like 2
      • Ben Khaki Storm
      • YNAB book topics online: https://support.youneedabudget.com/r/q5w48j
      • Khaki_Storm.1
      • 2 mths ago
      • Reported - view

      dakinemaui I will look around. Thank you. 

      Reply Like
  • Coco C said:
    I've left ynab multiple times because of confusion around how to manage credit card transactions and payments.

    If you always pay off your credit card statement balances in full, then you might be interested in transferring your CCs to checking accounts. I do the same as you and pay everything I can on CC and then pay off the balance each month. I've got it all automated. When you make your CCs checking accounts, there should be no confusion on how to manage. It's very simple. You make a transaction with your CC and categorize it to the correct category and that's it. When it comes time to make your payment, you just do an uncategorized transfer from your payment account to your CC account. That's all there is to it.

    Reply Like 4
      • Steve
      • sjb
      • 2 mths ago
      • Reported - view

      Superbone You can still do all of those things with a CC being set up as a CC in YNAB.  Not really sure why I keep seeing people setting up a CC as a checking account.  What happens if for some reason you CAN'T pay the balance in full one month?  Then you've got a mess on your hands because now you have to deal with overspending a much different way and end up with red all over your budget.  Keep your CC's as CC's.  You can still fully fund them via categories to make sure money is set aside for your CC payment.  Also, if you set up auto-pay and direct import, there's no need to deal with manual uncategorized transfers transactions.  They will just pop into your budget when they hit your CC and Bank accounts.  

      Reply Like
      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 2 mths ago
      • 3
      • Reported - view

      Steve They can always manage it YNAB4 style, although the carryover from month to month of the equivalent of the YNAB4 pre-YNAB debt category would need to be manual.

      There are a lot of issues with the credit card handling, and unless the answer is that you want to carry debt, one needs to adjust the payment  available amount in all cases (i.e. regardless of how it happened in the first place). The problem is that this becomes a PITA to monitor, and in some cases the money needed for budgeting went to TBB and in other cases it may be sitting in a category.

      Reply Like 3
  • I'm a credit card rewards type person, too. I'd rather get the points, especially if I'm paying it in full and not getting any interest. Might as well get an added bonus for spending my money! Plus the fraud protection is worth it to me as well. I don't even carry my debit cards anymore.
    What issues are you running into with your credit cards in YNAB? Maybe it's just a matter of wrapping your head around how it works? Or is there a real glitch somewhere?

    Reply Like
  • Steve said:
    You can still do all of those things with a CC being set up as a CC in YNAB.

     There are numerous issues that cause the CC Payment category to diverge from the account balance. By definition, this destroys the "paid-in-full" status within the budget. People switch to a checking account representation because they are fed up with having to babysit that Payment category. 

    Without question, the standard workflow is optimized for the new user who commonly adds to their debt. Hopefully it's not a surprise, then, that same workflow is NOT optimal outside of that case.

    To address another of your comments, if someone wishes to finance a CC purchase, it takes about 20 seconds to convert back to an actual credit-based account (i.e., a balance transfer transaction).

    Reply Like
  • Superbone said:
    If you always pay off your credit card statement balances in full, then you might be interested in transferring your CCs to checking accounts.

    Many people think paying the statement balance is "paid-in-full" status, which is simply not the case.

    I would say that if your CC Payment category Available matches the account balance -- the very definition of being able to pay the account "in full" -- then consider switching to a checking account representation.

    If you pay the statement balance, but your available CC Payment is lower than the account balance, then you are by definition, riding the CC float.

    Reply Like 5
      • Annieland
      • Annieland
      • 2 mths ago
      • Reported - view

      dakinemaui Aren't people who pay on or close to the due date riding the CC float?  This is what I don't get... what the advantage is to paying on the due date "for interest" as nolesrule has mentioned.  No matter what arbitrary date you choose to pay, it's still a month-to-month thing, so there's a month you're earning interest.  I pay my mortgage on the 1st of every month, and a very financially smart friend pays it on the 15th, when it's due.  Says he keeps his money working for him. But it's still 15th to 15th vs. 1st to 1st, right?

      For these reasons, I pay all my MANY CC's (for rewards, discounts, rebates, bonuses, etc.) the day the statement closes, for the statement balance, and go to $0.00.  I figure, I've already "spent" the money in YNAB and life, might as well pay the bill.  I just only do it at closing, not more than once a month.  Plus, if there's an emergency, I have the rest of the grace period to pay if I need extra time.

      Reply Like
      • jenmas
      • jenmas
      • 2 mths ago
      • Reported - view

      Annieland you are riding the float if you do not have the funds set aside at all moments in time to pay your account (as opposed to statement) balance in full. 

      Reply Like
      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 2 mths ago
      • 3
      • Reported - view

      Annieland There's a difference between taking advantage of the float and riding the float. Taking advantage of the float is about being able to pay at any time, and just choosing to pay on or close to the due date.

      Riding the float, means you are relying on future income to pay today's credit card purchases (i.e. you don't have the money now, but will when the payment is due). This isn't very obvious as most people don't realize they are doing it, because they associate the CC payment as the expense, and not the purchase as the expense (but you can't have a payment without a purchase).

      But it becomes obvious if you are using YNAB, which tells you if you have enough money reserved to pay your entire credit card balance, and that's why YNAB asks you to budget for your starting balance during onboarding. If you can and can still budget for everything else, great. But if you can't, you are riding the float.

      Reply Like 3
      • dakinemaui
      • dakinemaui
      • 2 mths ago
      • Reported - view

      Annieland 

      Annieland said:
      what the advantage is to paying on the due date "for interest"

      As you say, one consideration is interest. Easy money. If you routinely make $3k in CC purchases each month, just by being smart about when you pay will net you at least $60.

      An alternate view: if your CC charged you a $5 fee to pay early, would you still pay early? I know my answer would be, "H-e-double hockey sticks no!"

      Not to mention that paying on the statement date can usually be automated, eliminating the chance of error on your part (either in forgetting or a wrong payment amount).

      Reply Like
  • Steve said:
    What happens if for some reason you CAN'T pay the balance in full one month?  Then you've got a mess on your hands because now you have to deal with overspending a much different way and end up with red all over your budget.

    And why add the extra CC handling baggage when you will NEVER be unable to pay your balance in full? Some of us are lucky enough to have more than 6 months of income saved up as well as all of our other Rule 2 funds available.

    Reply Like
      • Steve
      • sjb
      • 2 mths ago
      • Reported - view

      Superbone What extra CC handling?  This is what I'm struggling with here.  I don't experience any extra CC handling baggage in my daily use of YNAB and my credit cards which I pay off each month.  I guess maybe I've just been lucky, or maybe because I have a morning routine of logging into YNAB to reconcile all of my accounts whenever there are new transactions...

      Reply Like
      • Superbone
      • Senior Software Engineer
      • Superbone
      • 2 mths ago
      • 1
      • Reported - view

      Steve , here are the 8 documented ways your CC categories can get out of sync:

      Credit to @dakinemaui for the list and @Joel for suggesting a sticky post on this topic.

       

      For your reference, here are the reasons I've found that the credit card account & payment category balances diverge (paid in full cards):

      • starting balance on a paid-in-full card - category is lower
      • overspending - category is lower
      • uncategorized transactions - category is lower
      • outgoing transfers to other on-budget accounts (e.g., gift card account, mixed funding splits) - category is lower
      • purchase/cash-back rewards (should be categorized to TBB) - category is higher
      • categorizing item returns as TBB (should use the original spending category instead) - category is higher
      • reconciliation adjustment - category is lower for an outflow adjustment, higher for an inflow adjustment
      • taking the account balance positive - category should be $0 in this case

      To correct the problem, budget whatever is needed to make them agree. Some of them can also be fixed other ways (e.g., overspending).

       

      If you're carrying debt on your card, your card balance and category balance will not, and should not, match. You can see the amount of debt being carried at any time  by clicking on the card's category and viewing the inspector: You'll see a line which reads, "If you pay [credit card payment category available] your account balance will be $X." That "X" is the amount of debt that is not presently budgeted to be paid off. 

      Reply Like 1
  • I guess I just don't see the issue here.  If you're entering your CC transactions against funded spending categories then YNAB will move money into your CC payment category and thus you should always have the full balance funded and available for payment.  I guess maybe I have a bit of OCD in that if it's a credit card, I'm using a credit card account type.  For us, we've never had a discrepancy between what our entire CC balances are and what we have set aside in YNAB so I'm just not seeing the issues here.

    Reply Like
      • Superbone
      • Senior Software Engineer
      • Superbone
      • 2 mths ago
      • Reported - view

      Steve Yep, that would help inform your thoughts on the matter. :) As soon as I dealt with a couple issues of keeping them in sync, I made the switch and never looked back. Somebody here can provide a link to the myriad of ways that they can get out of sync via normal use.

      Reply Like
      • adriana01
      • adriana01
      • 2 mths ago
      • 1
      • Reported - view

      Steve Count yourself lucky! There are some particular situations with regards to credit card handling that can pop up and are hard to track down. The first couple times I ran into one I never would have thought that a seemingly unrelated transaction could have caused my problems. I keep a link to this (or a similar) post handy as it runs down the possible causes & so far everything I've run into has been on it: https://support.youneedabudget.com/t/y7k09k

      I still use the built in CC accounts, but I do so knowing the possible problems that come with it.

      Reply Like 1
      • jenmas
      • jenmas
      • 2 mths ago
      • 1
      • Reported - view

      Steve I only make purchases against budgeted categories and still run into many issues related to credit card handling when I cash in points for statement credits, buy gift cards and treat the transaction ad a transfer to my on budget gift card category,  or make returns long after the original purchase. 

      Reply Like 1
  • One problem with the stock credit card handling is that YNAB does not keep track of transaction order in the credit card account.  It lumps all transactions into a single month.  If for example you have cash spending and credit spending in the same category then YNAB can get really wonky if you pay the credit card to zero and later have cash spending in the same category that causes an overspend.  YNAB will assign that overspend to the credit card even though it has already been paid to zero and the category will turn orange instead of red for cash overspending.  I had this happen with 2 credit cards at the same time, they both had a balance of 0, I overspent in the same category in cash and the overspend was assigned to 2 different cards.  

    For a lot of folks that started on an earlier version of YNAB we are used to the credit cards behaving like checking accounts.  Another advantage to setting them up as checking accounts is that all overspending is red and under funded is orange, simple.  This should only be implemented if you always pay you card off. 

    Reply Like 1
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