Why does YNAB let me “move money” from a credit card?
Here’s a scenario:
I have a credit card with a balance of $200. On a nice blank budget, the “Credit Card Payments” category group will show $0 for both “Budgeted” and “Payment”.
Then I buy $100 of clothing on that card. That will change “Payment” to $100.
Next let’s say I buy a watch for $20 using my checking account. I haven’t budgeted for it so I get a notification that I have an overspent category. I click on it to fix it and I’m given options I can choose to cover this spending.
YNAB let’s me choose the credit card. That results in a credit card “Budget” of -$20 and a “Payment” of $80.
This makes no sense to me. If I pay $80 into that credit card, I’ll be $20 short and be charged a late fee. The budget no longer reflects what owe or what I should be paying.
So why does YNAB let me move money from the credit card budget in this way? I feel like if I have budgeted $0 for it then I should not be allowed to fix an overspent category by making that negative, and if so, it shouldn’t certainly not lower my payment amount for that credit card.
I find that YNAB basically cannot tell me how much I should pay into a credit card. With credit card debt and new charges on the card, it’s not sufficient to track on YNAB what I should be paying to avoid late fees and adding even more to the balance.
Every reallocation has consequences, and you should be reallocating from less important categories. It could be that at some point, maintaining your current level of CC debt (apparently none at the moment) is less important than fixing your water heater, for example. Thus, the CC Payment category is a reasonable source of funds.
Yes, this may cause you to incur interest. That's a potential consequence of taking from that Payment category. But sometimes you gotta do what you gotta do.
This is why you should check categories BEFORE spending. If that purchase would cause overspending, then identify that lower priority category and move money in advance. If you can't identify a lower priority him which to steal, then don't make that purchase. It really is that simple.
The hard part is understanding your own priorities. 😉
Cornelius Gemstone said:
YNAB basically cannot tell me how much I should pay into a credit card
That's EXACTLY correct. You are the only one who knows how much you SHOULD pay. Some people pay minimums (in some cases even less), some pay the entire account balance, but most pay somewhere in between. What you should pay is entirely your call.
All YNAB can do is tell you how much you have reserved for that purpose in the plan (a.k.a., the budget). If you feel that is insufficient, then you must change the plan.
YNAB is simply a framework to let you easily keep track of your intentions. It can help you avoid mistakes, but only if you let it.
Thank you for your insights. I think I get it now.
The payment column is the sum of payments and charges plus what’s budgeted. If you have a balance you’re trying to pay off on a card you’re still using, you will have both charges adding to the payment column, and whatever you budgeted to pay off your balance adding to it as well. So if you pay exactly what the payment column says, you will reduce your debt.
If you budget $0, you’re telling YNAB that you are not going to try to reduce your debt this month. (This is actually worse than that because you’re not even paying the interest on what you owe at that point.)
If you budget negative, you’re saying that you’re ok adding to that balance.
Cornelius Gemstone said:
This is actually worse than that because you’re not even paying the interest on what you owe at that point.)
Minor correction: the interest should be budgeted for and recorded in its own category just like any purchase. Essentially, you bought time.
Budgeting $0 to the CC Payment category really does just maintain.