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?
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.
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.
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.
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.
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?
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).
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.
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.
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.
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.