I don't get credit card refunds

I have watched the video  over and over, and still--what? 

Why does the CC payment category go red if I get a refund after I've paid the balance? The money that I've been refunded doesn't stop existing--where does it actually go? In the video, they show a refund after it's been paid, but the clothing category doesn't go up with that $25 refund, so they just poach from the grocery category to bring the CC payment back to 0. That makes NO SENSE to me and it's driving me bonkers. That money DOES exist and should be back in the clothing category. I mean, even if you poach from the clothing category to cover that "overpayment" that still doesn't make sense to me, because you HAVE that money. The refunded money doesn't just stop existing. 

Can someone please explain? 

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  • Hey Maroon Falcon !

    When you make a purchase with your credit card, YNAB moves dollars from your spending category to your Credit Card Payment category to prepare for your next payment.

    Categorizing a refund back to the original spending category does the opposite. Those dollars move back to the original category. $40 for clothes in (spending) and $40 back out (return).

    Say you already used that $40 to pay down the balance of your card. The return will still move money back to the original category, but the $40 is no longer available in the Payment column—you already used it to pay the credit card company—so the Credit Card Payment category turns red.  You get a -$40 in your Credit Card Payment category and a positive $40 in your clothing category.

    To get things back in line, move money from the spending category (clothing) to the Credit Card Payment category, and you'll be back on track! Let me know if you have further questions. 🙂

    Like
    • Nicole Oh, so the video maybe just didn't SHOW clearly enough for my snowflake brain that the money went back to the clothing budget. So that part makes sense to me now (thank you!) but I'm still confused as to why the CC payment category will be red. I get in theory that it's because you "overpaid" your CC payment category but that still doesn't seem like you should have to actually move that money over because  then it's like the refund never happened at all. Does my confusion make sense? 

      Like
    • Maroon Falcon I'll pass that feedback on the video along to our team, to see where we can improve. Thank you!

      Is this refund for a purchase you made before starting YNAB? Or are both transactions (spending/return) in your credit card register?

      Like
    • Nicole I'm just having a hard time wrapping my head around the theory of it. This isn't about a transaction I've actually made yet, but I know I'm going to run into this later and I just can't make sense of refunds meaning you have less money. 

      Like
  • Maroon Falcon said:
    because  then it's like the refund never happened at all

    After the refund, it's actually like the purchase never happened at all. The problem then is the CC has it for no reason. (Again, the purchase never happened.) 

    The other way to look at is just simple math. Purchases increase the Payment category, refunds do the opposite -- decrease it. If it was $0 then was decreased, it must go negative.

    Like
    • dakinemaui I get that. But if it never happened, why is your clothing budget down the amount of the refund that you had to use to cover paying too much? 

      Oh, because you paid too much. So it IS like the refund never happened, kind of? 

      WHY IS THIS SO HARD FOR ME TO UNDERSTAND I AM A SMART PERSON. I'm yelling at myself, not anyone else. ;)

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

      Maroon Falcon Bottom line is the CC debt was reduced, but no dollars were assigned the job of reducing CC debt. (The clothing purchase doesn't matter any more, because it "didn't happen".)

      So you have to give some dollars the job of debt reduction. They don't have to come from Clothing, but they need to come from somewhere.

      Like 1
    • dakinemaui Ok, I'm going to let this percolate a bit. It's almost starting to make sense. Thank you! 

      Like
      • Tobias
      • Toviathan
      • 8 mths ago
      • 1
      • Reported - view

      Maroon Falcon Another way to think about it is the way YNAB treats transactions. YNAB is a cash based budgeting system. When you buy something on a credit card, no cash has actually left your budget and the impacts on your budget are minimal. YNAB just helpfully moves the money from your spending category to the CC payment category because the purpose of those dollars has changed (buying something to paying the CC). At this point, if the refund came in now it would just reduce your CC account balance back to where it was and take the money back from the payment and let you spend it again.

      Where it gets tricky is when you send the money off to pay the credit card. That is the instant cash actually leaves your budget. In doing the refund, something that is meant to undo the transaction, there is no actual money still there to give back to your category. It's gone. The system is still going to try and do this, but then you have to force it back since, again, the money is already gone.

      Like 1
    • Tobias Thank you! That really helps. 

      Like
    • Maroon Falcon I feel your pain. I too do not understand this. You purchased the $40 item, money moved from clothing to the credit card. Then you pay the credit card using that money. I am fine with all that. Then you return the item, the credit card is credited $40, so the credit card reflects that $40 as a negative balance. Which is then covered by clothing AGAIN??? What??? You are better off throwing the pants in a ditch and burying them. At least you don't pay twice for them that way. It seems to me after the return is recorded to the credit card you should then transfer the 40 to the clothing category and the clothing category will increase by 40 while the credit card goes to 0. I am so confused.

      Like
  • As I ponder this further, I think I see a glimmer of understanding. You decreased the balance by $40 when you paid. So, for example, the balance was $100, you bought $40 pants, it is now $140. You have $40 allocated for the payment of said pants from your clothing category, and you make the payment. The balance is again $100. Then the $40 refund occurs, making the balance $60. So in the end, you budgeted for and paid a payment of $40 but the balance decreased by $80 overall. You are magically $40 ahead in your budget and something, somewhere has to pay for that. 

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  • Sac Army Green said:
    You are better off throwing the pants in a ditch and burying them.

    Hardly. While your Clothing category would be the same and you're still without pants, your CC debt would be higher in that case. 😉

    Sac Army Green said:
    after the return is recorded to the credit card you should then transfer the 40 to the clothing category

    This is exactly what happens (automatically).

    Think of it this way: after the purchase and return, Clothing is identical to what it originally was. The ONLY thing that's different from before you bought anything is the CC debt is less and the CC Payment category is less.

    It's exactly the same as if you just up and sent the CC money right now (reducing debt) without it being reserved for that purpose. The CC Payment category would turn red then, too. Red signifies money is missing from your budget (cash accounts). As such, you need to reduce a green category to restore the balance. It's your call if that's Clothing or some other category. (Personally, I would reallocate from the lowest priority category with funds.)

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  • Nicole said:
    Say you already used that $40 to pay down the balance of your card. The return will still move money back to the original category, but the $40 is no longer available in the Payment column—you already used it to pay the credit card company—so the Credit Card Payment category turns red.  You get a -$40 in your Credit Card Payment category and a positive $40 in your clothing category.

     I'm having trouble with this as well.  "the $40 is no longer available in the payment column."  Yes, it is.  When I get a refund, the dept store puts $40 back on my cc.  If I buy gas for $100, money is transferred from my gas category to the payment category.  Then I return a shirt I bought last month.  So the CC balance goes down to $50, but there is $100 in the payment category.   Since the balance is only $50, I should be able to take $50 from the payment category and put it back in my clothing category.  

    I just returned $700 worth of home improvement items and I feel like I'm losing that money.  I need that $700 to cover subsequent expenses.  If I categorize that refund to my HI category, but then I have to move $700 from HI to CC payment, it is like the refund never happened.    

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  • I am not categorizing the refund as TBB.  I returned $700+ of home improvement items that I have previously budgeted and paid for.  I should be able to add that money back into my home improvement category (and use it to pay for something else).  If I categorize the return to my home improvement category, then the balance in that category goes up, but now I'm in the red on my "available funds" for the cc payment.  If I have to move the money out of the home improvement category to cover the red in the payment category, I have now lost the use of this money.  Where is my $700?  

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

      TAS The CC company has your $700. It doesn't have to be Home Improvement that takes the hit, but something does. The budget is comprised of your cash on hand, which is $700 less than before this all started.

      I mean, after the return, it's like you never bought that stuff. Yet your CC debt is $700 lower from the return (which actually squares you) AND another $700 lower from the cash you sent them.

      You can get it back by making $700 of budgeted purchases -- running your debt back up -- and then reallocate from the CC Payment category back to whatever took the hit for the overspending.

      Like 1
    • dakinemaui 

      That does not make any sense. If I return $700 of items I now have an extra $700 dollars.

      Even if the CC company still has that money, and it's not technically "mine" they should be applying it to my CC balance, putting me ahead on my payments. My credit card should be green not red.

      I can not for the life of me figure out why I would need spend more of my own money to cover a RETURN that gave me money back. 

      This feature doesn't work and it's a really basic function of credit card use.

      Like
    • Turquoise Tugboat 

      Similarly, If I pay my credit card early, it should still be green because I already allocated all the spending that I'm paying off to my budget categories when I made the spending. I shouldn't have to allocate it a SECOND time because I'm not paying my credit card on YNAB's preferred schedule.

      Like
      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 7 mths ago
      • 2
      • Reported - view

      Turquoise Tugboat 

      Turquoise Tugboat said:
      Even if the CC company still has that money, and it's not technically "mine" they should be applying it to my CC balance, putting me ahead on my payments. My credit card should be green not red.

       Your budget is a plan for your cash. The cash is gone from your budget, but you returned it to the category. It can't be both returned to the category and used to pay the balance at the same time. The cash is still gone.

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

      nolesrule Concisely put. I should have read further before replying. 😉

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

       TAS Something that might help. I've gone on a test budget. Started with a checking account with $150 balance and a CC with -$300 balance. Then I put a transaction on the CC for $150, the day after I pay the statement for $150. That means now in my accounts I have: checking = $0, CC = -$300. So I have no money to spend and $300 in debts. 

      Now, if I return my purchase and categorise to the original category. Let's first see what happens to my account balances: checking = $0 (since the return is on the CC), CC = $-150. So I still don't have any cash to spend, I simply reduced my debt (from other purchases than the one that was returned) by $150. 

      On the budget side now, I get +$150 in the original category and -$150 in the CC payment category. What does that tell me? It tells me the only way I can spend the $150 from the return is to increase my CC debt by $150. In other words, if I go and spend that money, I create more debt. Which is exactly the same as what the accounts say: since I have $0 in checking, the only way I can go and spend money is by creating debt that I have no possibility to repay right now. 

      So you can keep your $700 in your Home improvement category, it simply means your CC debt will increase by $700 putting it back to where it was before the original spending, payment to the CC and return. So it gets you back to where you were, there is no total increase in debt. There is a momentary dip followed by a rise. It might be what you want or not. If you keep the $700 in your Home improvement category, you have to remember to spend enough on your CC to cover it! As this is monopoly money as long as you don't have $700 of additional purchases on your CC. That's why it is better to reallocate and spend on the CC and move the money out of the CC payment category once it has enough (avoid the red = monopoly money!)

      I would encourage you to do the same and play with a simple test budget to see all the cases: what if the return gets the CC back to positive etc.

      Like 1
  • Turquoise Tugboat said:
    That does not make any sense. If I return $700 of items I now have an extra $700 dollars.

    No, you have $700 less debt. The amount of cash you hold is unchanged by the return.

    they should be applying it to my CC balance, putting me ahead on my payments

    They do (as evidenced by the decreased account balance). 

    My credit card should be green not red

    The bottom line is you now have $1400 of debt reduction, $700 from the return and $700 from the cash you sent them. The only problem is that $1400 was not reserved for debt reduction in the budget, only $700 was.

    I can not for the life of me figure out why I would need spend more of my own money to cover a RETURN

    You're not spending it by reallocating in the budget. You're simply removing it from one or more green categories because it's already spent (on additional debt reduction).

    Similarly, If I pay my credit card early, it should still be green because I already allocated all the spending that I'm paying off to my budget categories when I made the spending.

    Correct, because the cash backing those purchases moves to the CC Payment category, where they sit waiting to reduce the debt incurred for those purchases. The difference with that $700 is that it's currently in your Home Improvement category and NOT in the CC Payment category. It's double-counted at the moment -- as evidenced by the negative Payment category. You clearly cannot use it for a budgeted purchase (because you don't have it anymore), so it doesn't belong in the budget.

    I get that you want to count that $700 you sent to the CC has as still yours, but that's just not true (as you acknowledged when you said, "it's not technically mine". The budget is the plan for your cash. Not the future-extension of credit.

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 7 mths ago
      • 1
      • Reported - view

      dakinemaui Not concise, but at an excellent thorough explanation. 😉

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

      I suggest that you reallocate from some other category to clear the overspending. Just look at it as you are now further out of debt.

      I am assuming you still have debt (negative account balance). OTOH, if the account balance is positive, then everything we've said doesn't apply. TBB was increased when it went positive, and you should use those seemingly new funds to clear the overspending.

      Like
  • nolesrule said:
    Your budget is a plan for your cash. The cash is gone from your budget, but you returned it to the category. It can't be both returned to the category and used to pay the balance at the same time. The cash is still gone

     I pay my balance every month.  So if I return $700 in merchandise, my credit card now has a credit balance of $700.  Although the CC technically has my money, if I do not use the card, they will eventually send me a check for this money.  So it is mine, and available for use - just like cash sitting in a checking account.  I think the problem is that YNAB treats this credit balance as if it is something that needs to be "fixed" or "covered".  It does not need to be fixed or covered.  

    Like
  • TAS said:
    So if I return $700 in merchandise, my credit card now has a credit balance of $700.

    As I mentioned previously, if the CC account balance is positive, then none of what we've said applies. A positive CC is identical to a checking account, and it is considered cash.

    When the account goes positive, YNAB increases TBB. If you didn't realize that and put those funds in some other category, then pull them back. Use these new funds to fix the overspending warning.

    Like 2
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