Question about a credit card account
I have a question about credit card debt. Could you please tell me if the following steps are correct?
1. I added a credit card account in the budget section (and not the tracking section) and its total balance.
Let's say - 5000$ for Visa.
2. In the "credit card payments" category, appears the name of the Visa account. Now, in that category, do I budget for the total amount Visa will take from my account (150$) at the end of the month, OR do I put the real amount I'm paying towards the amount I owe to Visa (100), and budget for the interests (50) separately in another category I create?
3. Arrives the day when Visa takes the money from my account: do I record that transaction as it is, or do I split it in two? (100$ and 50$ of interest). OR do I transfer the 100€ to the Visa account, and record the interests as a regular expense?
Thanks a lot for your clarification! Still learning.
All the best,
Recommended practice is to budget for interest separately, as then the payoff goal calculations will work correctly. Progress out of debt is obvious, by the fact something is budgeted to the payment category..
Many people will just leave interest unfunded -- which will then go overspent -- in the interest of easier budgeting. The con is it's not obvious whether you're making progress, and the Payoff goal suggestions will be too low.
An interesting middle ground is to budget everything to the payment category, then cover the overspending when it occurs from that payment category. This turns off the warning, and shows the real progress.
The interest charge is just like any other purchase: an outflow attached to a specific category.
Budget for the interest in the interest category; YNAB will automatically move the money to the credit card payment category for you.
Then budget the difference between the interest charge and the actual payment amount, directly to the credit card payment category.
The payment is a **transfer** from your checking account to the credit card account, for the exact amount of the payment, with no category required.
Caveat to the above: the math is easy if you are paying a fixed amount over the interest charge, i.e. interest +$100. Less so if, say, the interest charge is $27.46 and you plan to make the minimum payment of $111. Fortunately, the budget box acts as a mini calculator, do you can type "111-27.46" and YNAB will budget $83.54 for you.
dakinemaui 's "interesting middle ground" is actually the route I most often took, but sometimes people don't realize you can do the math right in the budget box.
If you budget the $50 to the interest category, YNAB will move that $50 for the interest transaction from the interest category to the CC payment category. If you also budget $150 directly to the CC payment category, then your category available should show $200. If you only want to send $150 to the card, period, then yes, you'll want to only budget $100 to the card and let the $50 come from interest.
If you have other spending on the card as well, as long as it's in budgeted categories, YNAB will also move that money from its original category to the CC payment category, increasing the Available to pay. If you want to also pay down debt, you budget the debt paydown amount to the CC category directly. Is that your situation?