Overdraft? Credit line? What's the difference?

Hello, I've been using YNAB (this time around!) since about June. I'm a bit confused about how to accurately record my bank account.

My account comes with what I would call an "overdraft" facility, meaning I can spend past 0, i.e. money I do not have. I get charged a small monthly fee for the account itself and quarterly interest for any overdraft actually used. There are no penalty fees for using it, and I am not required to pay back the full amount immediately.

I've seen different information on the site and in videos about how to handle being frequently/constantly overdrawn.
e.g. https://vimeo.com/youneedabudget/review/166984606/20339a3e90
refers to an "overdraft", which looks to me to be set up like an ordinary checking account. However, as well as punitive fees, it also looks like there is an expectation that the full amount must be paid into the account before it can be used again, which is not true for me.

In another question in this Q&A, someone was advised to set up the account as a "line of credit". Does that match my setup?

I had been using the method from the video until this month, where my To Be Budgeted has gone into the red and I can't do any budgeting. Should I just keep recording my transactions and resume budgeting once I have cleared the overspend from before?

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  • No, don't use a "line of credit". The best way I know of to handle the type of overdraft you have is described here:


    It allows you to make a plan for those overdraft dollars (obviously a good idea since you're going to spend many of them), as well as plan your way out of that situation. The YNAB methodology (Rules 1, 2, & 3) that works so well for so many people can work for you, too. 

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      • Rebecca D.
      • Sky_Blue_Leopard.3
      • 10 mths ago
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      dakinemaui thanks! I have responded there with a follow-up question.

      I should have added in this post that I'm based in Germany, not the US. I had not appreciated that non-US accounts work so differently, thanks for spotting that and responding appropriately.

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