Dealing with Medium-Term Credit Card Debts

Have a question for the community about how to deal with introductory / special financing on credit card accounts. I know this isn’t exactly kosher for some folks on YNAB—ideally we pay cash up front with existing funds and have no debt—but paying off a large purchase on a no-interest* account with monthly discipline feels like its own budgeting win. (A similar, no-interest but low-fee method is American Express’s “Plan It” feature.)

My questions are about how to account for it using YNAB. Since the full amount hasn’t yet been budgeted, what is the best thing to do when the purchase is made? I have had some ideas but am trying to keep it less complex, and feel like I am both overthinking this and not understanding YNAB well enough.

A couple things I looked at:

  • A new tracking account, but I did not figure out how that might play with the credit card account and paying it off.
  • A goal, which I think still might make sense, but doesn’t solve for the original charge’s impact on my budget.

I’m trying to avoid describing my specific scenario, but here’s a pretend example: I buy a $1,200 sofa in November with a store credit account that’s added to YNAB, which gives me a year to pay it off with no interest. I can easily fit the $100 in each month’s budget, but it breaks this month’s budget.

Any ideas would be greatly appreciated, as it’s currently throwing off what’s felt like a very successful run with YNAB so far.

 


(*it’s only no interest if you pay on time, but that’s the discipline part.)

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  • Others may have a better idea.  I would do in YNAB exactly what is happening.  I would put the purchase in the cc account with the category of furniture.  I would set a goal in the cc budget for $100 per month.  What you will see in the present month the furniture budget line will show an over budgeted expenditure which is exactly what happened.  You do not have the money in the furniture budget.  The cc will only show as available what you already had in the furniture budget.  Say you had budgeted $50 then the cc would show $50 available.  Next month the cc budget will show your goal is underfunded until you budget $100 in that cc account.  Next month the furniture budget will be back to $0 and if you highlight the cc the Inspector will show what your debt is.

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      • WordTenor
      • Arranged the menu, the venue, the seating.
      • WordTenor
      • 2 yrs ago
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      What Coral Captain (d6ee2308afc4) said. That's exactly how to do it. This month goes overspent in the relevant category, and then use the goals on the CC category to ensure you pay it off by the end of the promo period. 

      Reply Like 2
      • WordTenor
      • Arranged the menu, the venue, the seating.
      • WordTenor
      • 2 yrs ago
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      It's also a good idea to plan to pay these type of debts off in 11months, since you usually get hit with all the back interest if you screw up the payoff even by a dollar or two. Planning to finish one month early gives you wiggle room. 

      Reply Like 3
  • great responses.  I agree with what everyone has already said, especially Tan Major.  At the end, pay it a month early to give yourself time to know if you are off a dollar or two.  If you think it's hard to come up with the monthly payment, that interest payment will hurt on an entirely different level.  

    Yes, it's going to mess up your monthly numbers because you have to pull that money out of another category each month until paid.  That is what installment payments do.

    You can do this. Congratulations on you "new shiny" purchase.

    Reply Like 1
  • Thanks for the responses so far, everybody. I think it generally makes sense—just live with the overspending on the category as long as you have a goal to pay it off by its ending date. It’s a new concept for me—I prided myself on always being able to spend from within my budget up until this point, so accruing debt within YNAB without opening a new account is … weird.

    There is one thing that’s confusing, however, since I’m now in this new world. The card I’m using has a promotional rate, but in the meantime I’m also using the card for other charges that I pay off in their normal billing cycles. This means there’s an existing balance on the card. Are you suggesting just putting the divided amount in the “Pay Specific Amount Each Month” and budget for it there?

    Reply Like 1
      • WordTenor
      • Arranged the menu, the venue, the seating.
      • WordTenor
      • 2 yrs ago
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      Powder Blue Cornet (b0038a4e38e8) Either one should work. If the rest of your purchases are budgeted, and thus moving to the category on their own, the only debt left will be the carried balance and "payoff by date" will attack that amount. Or you can do the math yourself and just use "specific amount." 

      Reply Like 1
  • I do not enter my debts into YNAB.  I have a category for each thing I'm working on (like my car), but I do not track their outstanding balances (except for two ccs that we use almost exclusively for business travel).

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  • I just started YNAB in mid Sep17 and went crazy with zero interest credit cards in October and November with the goal of paying off debt as quickly as possible.  Here are some of the pro's and cons of what I did.

    I applied to about 4 Rewards cards that paid varying % back on gas, restaurants, and groceries.  All of these cards offered a zero interest for 18 months as well as a balance transfer of 3% fee.   On one of these cards I transferred a personal loan balance of about $9K to one of these cards.

    On the negative side, my credit score dropped significantly..  I guess it was because of the increase of available credit of about $60K and maybe it looked like I was desperate for money, I'm not sure but my score dropped.  I am told this is just a temporary hit to my credit score and it should go back up rather quickly.

    On the positive side,  I saved about $400 in interest on the personal loan and it will be paid off sooner.  I already cashed in cash back rewards of $225 in about 6 weeks time.  One card (Chase Freedom) offered $150 bonus if you ran $500 through it in less than 3 months and it gave a $25 bonus for adding an authorized user.  I'm currently using a Wells Fargo cashback rewards card that only pays 1.5% but the bonus is $200 for running a $1000 through it in less than 3 month.  

     

    If you want to apply for the Chase Freedom Card, please use this link because they give a referral bonus of $100 which is another nice plus. 


    https://www.referyourchasecard.com/18/710CTDLAJL

     

    As far as the YNAB transactions go, I set a goal to pay the card off before the introductory zero % rate expires and I pay that goal payment each month.  That is for the card that I transferred the balance.  On the rewards cards I go into the CC account and initiate the transaction in there and it moves that money to the credit card category so I always have the money to pay the balance off in full each month.

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  • I like the goals feature, pay off be certain date.

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