Line of Credit & Transfers
Hello,
I am so confused at the way my available balance shows up for credit cards, including my line of credit, which is in this section.
- I owed 501.46 at the beginning of the month, and paid it in full, bringing my balance to 0.
- Then I transferred $1000 from my line of credit to my checking account. The line of credit (under accounts) accurately shows that my current balance is $1000.
- However, my budget still shows my activity as only $501.46 and does show the $1000 I now need to pay back.
Help, please! I don't get how to deal with credit using YNAB.
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Pink Cobra said:
However, my budget still shows my activity as only $501.46 and does show the $1000 I now need to pay back.The categories and the accounts are not linked. That might help you understand. It's a start. https://www.youneedabudget.com/the-relationship-between-your-budget-your-accounts-its-complicated/
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Ben K. I still don't understand why it shows that I owe $501.46 when I actually owe $1000.
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Pink Cobra The -501.46 isn't what you owe on the card. That's the whole it's complicated blog bit it about. The -501.46 is the budget category balance for the month you're displaying (guessing it is this month). What that means is you spend -501.46 more than was in the budget. In other words, there was no money sitting in there waiting to be used.
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If you don't spend directly from your line of credit, it should not be a budget account.
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nolesrule It's more like a cash advance on a credit card. Doesn't YNAB handle those situations?
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Ben K. Yes. But a line of credit that you don't spend from directly just creates extra work treating it like a credit card precisely because you never use it for spending. You are better off treating it like a conventional loan.
A cash advance from credit puts money in your TBB. You can then budget it anywhere. But you can't pay it back without budgeting to do so or you are giving your dollars more than one job.
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nolesrule Thank you! This kind of makes sense to me (the fact that I am giving my dollars more than one job) but I am not sure how to treat a conventional loan in YNAB. Do I need to create a category and not link it to my account in the bank?
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nolesrule That makes sense. It bothers me that I just set it up the way YNAB suggested, which is as a Line of Credit (what it is).
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The easiest way would be to set it up as a tracking account (or you don't even need to have the account in YNAB at all). You can still link it. You would use a regular category to budget for the pay it back.
I just want to repeat before you change things around that you can only do this IF you aren't spending directly from the LOC.
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Two things going on:
- You didn't reserve that $501 for the payment in the budget. In fact, you assigned an entirely different job to that money. The problem, then, is that you sent the LOC money that's earmarked for other uses. You need to move money from green categories in the budget to cover the red LOC Payment category to reflect this reality.
- The cash advance is new debt immediately -- reflected in the account balance, and TBB will have increased by the same amount. This transfer doesn't affect the Activity in the LOC Payment category, because the purpose of that category is to reserve CASH that you'll send to the LOC (paying them back). When you're ready to pay them back, budget to the LOC Payment category and send whatever is in the Available column.
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dakinemaui THANK YOU! This made sense. I now see where the money went. Is this going to ask me to pay back $1000 next month? How do I budget for that?
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Pink Cobra It won't prompt you, by default, to pay back the $1000. YNAB can't possibly know if you can afford to do so. You can set a goal if you want a prompt, though.
When you're ready to pay them back, budget to the LOC Payment category and send whatever is in the Available column.
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Hi Pink Cobra !
Transfers from a credit card or line of credit account to a cash account in your budget represent a cash advance situation in real life. Here's a video that shows this in action.
To fix the issues you're seeing, you'll need to budget $501.46 towards your BECU Line of Credit category (if you don't change it to a Tracking account as Nolesrule mentioned) and, when you're ready to pay the $1,000 back, you'll need to budget that as well.
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Faness I'd like to see that video you posted but the link has expired. Could you please fix the link? I'm having an issue on how to manage lines of credit vs credit cards but I can't find information on lines of credit, they're all videos on just credit cards.
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Khaki Piano Line of credit and a credit card are both debt instruments and behave identically in YNAB.
Typically, though, if you are not making budgeted purchases from a credit-based account (LOC or CC), then it is recommended that it should NOT be an on-budget account. Just use a category to plan for your payment.
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Hi Khaki Piano !
I updated the link above so that it goes to our Help Doc on Credit Card Cash Advances. There's a video that shows the process in action, however, the behavior is the same for a credit card or a line of credit - as dakinemaui mentioned.
Is there a certain part of managing those lines of credits that's causing you trouble? If so, please let us know! We're more than happy to help! :)
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dakinemaui I appreciate your input, already making it easier to manage my budget. Have a happy Easter! o/
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Faness Perfect, thank you! Have a happy Easter as well! o/
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