How do I record line of credit transactions?
I have several line of credit accounts (LOC's), and I am planning to use them to finance a major home renovation. Unlike for my credit cards, which I always pay off monthly, I won't have enough money to pay off the debt for several years. Because it's not possible to budget when you have a negative "to be budgeted" amount, I need to figure out what to do with the debt so that I can still use YNAB for budgeting everything else.
The ideal solution would be to change the LOC's from 'budget accounts' to 'tracking accounts' so they don't affect my budget; but YNAB doesn't support this.
I could unlink the accounts from YNAB and keep the debt out of YNAB completely, but I use the accounts for regular transactions as well. And unlinking the accounts would undermine the benefit of a cloud-based platform anyway.
Does anyone have any ideas?
There is a setup described by dakinemaui in this thread: https://support.youneedabudget.com/t/q5wlp8
The gist of it is to have 2 accounts: one is the LOC at your bank (negative balance), the other is the total credit you can draw from the LOC (positive balance, no transaction in this account). Then you create a category in your budget for "LOC total credit". Then you plan what you want to do with the total credit money you can draw from the LOC, ideally reserving some for the "LOC total credit". Every month you add to that category. When the category available equals the balance of the "fake" account, you are done. Read the details in the thread.
Much depends on whether you want to plan with those funds and make priority-based spending decisions OR do you have the renovation planned elsewhere and you just need to deal with the fact your debt will increase. It sounds like you are talking about the latter. (The process Ceeses linked is more for living on overdraft where you're making those spending tradeoffs.)
You can't convert from a LOC to a tracking account, but it's a simple matter to make a balance transfer from a new tracking account. (You could also just move all the transactions to the new account, but that can get messy.) Just record an inflow transfer in the LOC-Budget account, using the category Inflow: To Be Budgeted. Contrary to what you might expect, your TBB will not be impacted.
Create a new category for the payments moving forward, move the money from the old LOC-Budget Payment category to the new self-made payment category, and close the now $0 LOC-budget account.
Since this is no longer a budget account, you won't be able to use this LOC directly for budgeted purchases. Hopefully that's not an issue. If push comes to shove and you had to use this LOC for a budgeted purchase, you can record net $0 splits since no money enters/leaves a budget account.
Hi, there! If you have any issues setting up this LOC account, you can always write to us at [email protected] (or press the question mark in the app to get in touch!) and we can walk you through the process based on your specific situation. 🙂
Thanks Ceeses and dakinemaui for your responses. It's disappointing that YNAB doesn't support line of credit accounts, which are pretty common (I have four of them in addition to credit cards). In any case, I'm not willing to do the acrobatic contortions you've described for a service I pay for (if YNAB were free, I may be more forgiving). Unfortuantely, YNAB's inability to recognize negative account blances is a deal-breaker for me, because my "to be budgeted" is negative and will be for many more years.
I just did this. It's just like a credit card in YNAB. First, you create a LOC account, which will appear in "Budget Accounts", using an initial zero balance. Then when you borrow from it, you log the transactions as purchases and/or transfers to your checking/savings account. Both activities will create a negative balance in that account.
Then, within your budget, the LOC will automatically appear in the "Credit Card Payments" Category. Then you can budget for monthly payments to pay down this debt.
As someone who pays off my credit cards monthly, it does feel weird to potentially embrace a negative total balance for my"Budget Accounts", but this will not affect your actual monthly budgeting, beyond adding another line where you can assign money to pay off the debt within your budget. If your LOC is backed by investments that get sold, you can transfer "money" from your investment account (under Tracking Account) to the LOC to represent what gets paid off.