Credit card debt/getting a month ahead


I read a thread yesterday about whether it's better to get a month ahead in budgeting or save a small emergency fund first. I have a similar question about whether I should pay more towards credit card balance/interest right away or wait until I am a month ahead with my budget. Now that I've started this, I'm eager to see the CC balances go down ASAP, but a couple people commented how being able to budget the whole month up front was a game changer, and I can see that. Thanks for any insight. 

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  • Some people find that getting a month ahead helps them with faster debt pay down. If you can fund all of October at one time with income received in September, you can clearly see what is extra that can be put towards credit card debt.

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  • I'd try to split the difference and pay some towards extra principal on the CC but also work towards getting a month ahead on budgeting. As far as emergency fund vs. month ahead, these can be the same thing or similar because an emergency fund will pay for your categories in the event of an emergency.
    I'd work towards paying CC and month ahead at same time, then build up an emergency fund after you've began on the first two. As your emergency fund grows, keep in mind money will grow better via an investment than a stagnant savings account. 

  • It really comes down to personal preference in the end. While my husband and I are not a month ahead, we can easily fund the current month plus a portion of the next month. We decided to take the snowball approach to debt repayment and have done very well with recurring payments onto the debt that are automatically withdrawn. However, these are ones that we control so I can change them easily at any time. We want to see the debt gone and reduce the interest we are paying. We were averaging $500+ in interest alone over the past couple of years. Once paid off, we can use that money to help get the month ahead. We are trying to slowly get a month ahead but it is not as much a priority as debt repayment.

  • You can look at the interest as the price of the clarity and convenience of budgeting the entire month in advance using cash on hand (before paying down debt). I mean, I'd pay $5/month, but I wouldn't pay $500/month. Everyone has their own threshold.

    Since you mention interest, you might consider riding the CC float to help with that. That is effectively an interest-free loan for whatever amount you can consistently make in budgeted purchases each month. It's quite easy/safe doing that with YNAB because you're always making budgeted purchases on the card you're floating on. I mean, if you're going to buy groceries/gas/utilities/whatever anyway, why not leverage the CC's money for a change.

  • Thanks for the input. I think I will lean more towards paying off the debt sooner and build up the extra month slowly. 

    Yes, I definitely plan to do the CC float with my card that I pay in full each month. Points for travel (which hopefully we will someday be able to do again)!

    Somewhat related question - is it considered living to paycheck to paycheck when you don't have the extra month of funding? Even if you have a LOT saved in 401k or elsewhere? 

    • Green Flute 
      Probably depends on some more factors, if you want to call that paycheck to paycheck or not...🙂

      401k's typically aren't too liquid to help you out, unless you use the COVID dismemberment or hardship loans. If you don't have other savings or buffer in your other expense categories you're fine.

    • Green Flute I consider it to be paycheck to paycheck if your budget operations are timed to your paycheck. If they are timed to your expense recurrence then you've "broken the paycheck to paycheck cycle".

      With True Expense savings, one is not "living" P2P (as bills can easily be paid from the money in the account: temporary overspending), but YNAB goes one step further by wanting expenses paid with dedicated funds without implicitly leaving anything else short.

      One can quibble about the edge case where paid monthly on the last day of the month or when both expenses and income are bi-weekly. 😉

      Oh, and no, 401(k) funds or other investments don't count. 

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      • Superbone
      • YNAB convert since 2008
      • Superbone
      • 1 yr ago
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      Green Flute That was my plan in my debt days as well although I did do the Dave Ramsey Baby Emergency Fund of $1000 first. Just having that additional $1000 helped make sure I didn't go further in debt. Then once all debt was paid off, I worked toward getting a month ahead.

      Then, I completed my full 6 month emergency fund of 6 months of salary. (some do 6 months of expenses which should be even less)

      At that point you can ditch the green flute for a silver or even gold flute. 😉

      Like 1
  • Green Flute said:
    I definitely plan to do the CC float with my card that I pay in full each month

    Plan to? What are you waiting for?

    Does that card have it's Payment category covering the entire account balance?

  • I put in the amount of the statement balance which is what I need to pay to avoid any interest/fees. Is that "correct" or should it be the balance the day that the payment is due, even though the full amount is not due (recent charges will be on the next statement)? I can see how that would be simplest, but it doesn't take advantage of the "free loan" if I am understanding correctly...

      • WordTenor
      • Can we agree that goals are dumb and immature? Sure.
      • WordTenor
      • 1 yr ago
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      Green Flute A paid in full card should have reserved in the budget the amount of its working balance at all times. The "taking advantage of the float" part will come from the fact that you won't send the entire amount reserved. By the time your bill comes due, you will have about two months' worth of charges set aside, and you will send only one month's worth (the statement balance) leaving the second month sitting in your accounts earning interest.  

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    • Green Flute If your Payment category Available goes near $0 when you pay the statement balance on the due date, then you are already riding the CC float (near the maximum amount your purchase habits permit).

      By comparison, a paid-in-full card's Available payment (after the payment) will be about equal to the statement balance (which was the account balance roughly 4 weeks prior).

      Since you're going to work toward debt reduction, your end-goal of paid-in-full status will have enough in the Payment category to pay off the entire debt / account balance. ("Pay the account in full", right!) However, most PIF users only send in the amount the CC has requested (a.k.a., the statement balance).

      The simple rule in the budget for paid-in-full status: the account/category balances will be the same magnitude with opposite signs. Keep budgeting to the Payment category over time to narrow the gap.

  • Thanks for the explanations of paycheck to paycheck. 

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