Carrying Credit Card Debt | Interest Handling (Again)
After watching an official YNAB YouTube video today where #3 was performed, it made me revisit how I'm handling this. Just curious in 2021 how you all are dealing with CC interest when you can't yet pay off the balance.
I've seen 3 different ways people seem to deal with credit card interest when they are not yet able to pay the card in full:
- Enter the interest transactions in the card account and then let the budget interest category just be negative until it converts to added debt the next month. Then enter the minimum payment in the credit card payment category.
- Enter the interest transactions in the card account and then enter the minimum card amount in the budget under the "interest" section. This simply prevents the category from remaining in the negative in the budget..
- This is the interesting one that I saw Hannah do in a YouTube YNAB video. She never entered the interest transaction in the card account. Instead, she simply "reconciled" the account and, when prompted, entered the new proper account balance (including the current month's interest) in the reconciliation.
When I was paying down multiple cards, I'd enter all of the interest transactions (I'm a stickler for accurate account registers), but I'd leave the interest category overspent (collapsed in its own group).
For me, budgeting for the interest was an extra step when I had already determined I was going to be paying minimums on my cards, with the exception of my focus debt.
What we did when paying interest was to
- Budget whatever we were going to pay to the card anyways (above otherwise budgeted purchases) in the CC payment category.
- Enter the interest as an actual transaction, categorized to the interest/fees category.
- Move money from the CC Payment category to cover the "overspending" in the interest category.
You'll notice that the available to pay the CC doesn't change, but everything is green again, reflecting your plan.
Mathematical sleight of hand. Very fun and satisfying.