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?

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  • 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.

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  • 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.

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  • 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. 🙂

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  • 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. 

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      • Ceeses
      • Ceeses
      • 2 mths ago
      • Reported - view

      Orchid Gazelle How would you want YNAB to recognize negative account balances and TBB? What would you like YNAB to enable you to do? You don't have to reply, I'm just curious about what you would expect.

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    • Ceeses Every accounting and budgeting programs I've used recognizes negative balances except for YNAB. YNAB's biggest problem from my perspective is that it doesn't fit reality. YNAB works for someone who has lots of cash on hand and their "to be budgeted" amount is never negative. That's not me: I have loans, credit cards, and a mortgage. Even when my bank balances are "$0", I still have tens of thousands of dollars in credit available, but YNAB has no way of recognizing this. As I said, this is a dealbreaker for me, and I've cancelled my YNAB subscription. I'm not sad though: YNAB is full of weird stuff (only one income category??), requires complex workarounds for standard transations, is expensive, and has limited functionality (especially for Canadians) and flexibility. I'm glad I tried YNAB, but I just can't make my finances fit their mold.

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    • Orchid Gazelle I can appreciate your frustration but your assumption that Ynab users have lots of cash on hand and never work with a negative balance is false. Many of us are negative but using the software to work towards changing that. I find the cost of a yearly subscription is cheaper than other discretionary things we spend money on and in the long run it helps me avoid accruing more debt while I work on paying off my debt. For lines of credit I manually import the transactions and categorize them just like every other transaction. The difference for me now, is that I'm now covering MOST (not all) of my transactions with cash in my TBB allowance and not on my credit limit. Maybe follow along on the groups through FB and youtube for a while and give it another shot. I've used Ynab for 6 years (5 while living in the UK using Sterling pounds) and the past year in the US. I've spent this past year working on getting my finances in order. It's provided clarity and focus for me to meet my goals of being debt free in 5 years. Good luck to you

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  • Ok, stupid question, but what exactly is a line of credit, what is it used for and why would it be a negative budget account balance/create negative TBB?

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      • Ceeses
      • Ceeses
      • 2 mths ago
      • Reported - view

      Periwinkle Flute It's a loan, hence the account is negative to inform the user of how much debt they currently have to repay. The loan is usually for $X and people can draw money when they want. So a bit like a credit card: you get a credit limit of $X but usually only draw less than that. 

      The difference with a credit card is the interest rate is a lot lower. And there is no card attached to it.

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    • Ceeses does YNAB handle them like credit cards? It's not important, I'm just having a hard time time following how the OP wants YNAB to handle them versus how they actually do...

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      • MadDog
      • Navy_Blue_Pegasus.2
      • 2 mths ago
      • 1
      • Reported - view

      Periwinkle Flute I am confused on that too. We have two lines of credit. I set them up as credit card accounts and registered the debt on them as debt. If i use them to pay for something, i simply use the loc as the account and record the transaction. My debt goes up if i cannot afford to repay. We used the loc for major renos when we bought a new house. We then budgeted the repayment to the credit card category. I must be missing something.

      Like 1
      • dakinemaui
      • dakinemaui
      • 2 mths ago
      • 2
      • Reported - view

      Periwinkle Flute A credit card is a line of credit. Sometimes you can't spend directly from a LOC and have to transfer to checking first, but there's no effective difference -- they're both debt instruments. 

      I suspect the OP wished to plan/budget their available credit based on their statement that, "Even when my bank balances are "$0", I still have tens of thousands of dollars in credit available". (Their comment about a mortgage would make sense if they have an offset-redraw type setup common to some non-US countries.)

      YNAB only allows you to make a plan for your cash. The intended focus is to "stop the bleeding", which is exactly what happens when spending does not exceed the actual cash that you have on hand. (Any purchases you do make on a credit card or line of credit can obviously be paid off in that case.)

      The desire for a renovation when funds are not available is kind of the opposite direction. However, I don't understand why those funds had to be in the budget. It's obvious that spending decisions / trade offs against other expenses were not going to happen -- you know, the sole purpose of the budget.

      Anyone who takes out an auto loan is in the exact same situation. I believe they just didn't understand that credit purchases do NOT impact the budget outside of the temporary warning that new debt can't be paid back immediately.

      Like 2
  • 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.  

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      • SgtBatten
      • "YNAB broke" since 2013
      • SgtBatten
      • 1 mth ago
      • Reported - view

      Beige Hammerhead You can put the loan account off budget and still do a transfer to an on budget account (either a specific one you make for the LOC or your regular transaction account depending how you actually withdraw the LOC for use).

       

      This gives you a negative account off budget just like a mortgage which you can make payments to. 

      It also gives you a TBB increase which can be budgeted and spent as required and keeps your budgeted accounts positive.

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