
Budgeting Credit Cards
I use my credit cards to make 99% of my purchases outside of mortgage and student loan payments so that I can earn reward points. I never carry a balance on the card, usually paying off every day when I get to work. I am not sure I am treating this correctly in my budget because it never seems to add up or reconcile correctly. I do not budget anything for credit cards. I budget in my line items and then when I make a payment from my checking account to the credit card it says "category not needed" and is treated as an account transfer. Is this not the correct way to do this? How should I be treating credit cards in my budget. I feel as if this is structured for people struggling to pay off big credit card debts, not those of us who are paying off the balance every month. How do I fix this?
Thanks!
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The first month you use YNAB, you likely have charges on the card that have not been budgeted for, because they happened before you started the budget. In your mind, some of the money in your checking account is reserved for paying back the card. The budget needs you to make that intention explicit by budgeting money to the card to pay off all of those purchases.
From then on, budgeted money will be automatically allocated to pay off the card as you spend and categorize your transactions. The only exception is if you overspend. You can’t reserve more money to pay off the card than you had in the category, so only the amount that you had in the category will move.
Tl;dr If you pay your card in full each month, then at any given moment the balance in the card’s category in the budget needs to be equal and opposite to the amount charged on the card, to the penny.
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The credit card structure is indeed designed for people struggling to pay off credit card debt. To mash the structure into a paid in full credit card system, you need to ensure that the card payment category is equal to (and opposite sign of) the card working balance. Do that, and everything works properly as long as you don't take cash back as a statement credit, use the credit card to fund an on-budget gift card, or overspend a category with credit and fail to fix the budget before month rollover. (I may have missed one or two obscure things that can make the card payment category and the card balance diverge.)
More simply, if you set your credit cards up in the budget as checking accounts and routinely pay them in full timely, you can sidestep the entire YNAB credit card handling and not worry about the bugs and features designed to make it easy to add debt in the budget. Unfortunately, this only works for people who pay their cards in full, i.e. are able to pay the entire balance at any given time. It doesn't work for people carrying credit card debt or living on the float.
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If you are having a hard time understanding credit cards in YNAB, I recommend this video (https://youtu.be/2Ix0Jibc0Lw) from Nick True. He does a very good job showing how credit cards work.
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Hi Blue Wizard !
You'll want to budget enough towards your credit card category to make the credit card category Available amount match the credit card balance**. Once you do that, as long as all future transactions on that credit card are budgeted for, the amounts will stay aligned. When making a payment, double-check the Available amount first and only pay that amount (or less).
To learn more about how credit cards work in YNAB, take a look at our Quick Start Guide to Credit Cards and consider taking our Master Credit Cards with your Budget workshop!
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I think you're making this harder on yourself by paying off the balance daily.
Not to mention all the extra transactions you have to deal with on your bank and CC statements...
To make this easier on yourself:
Simply set your CC to AutoPay the STATEMENT balance each month. This avoids finance charges. Sure you may never see a ZERO on your CC statement if you use it regularly, but you're paying off the amount that would incur interest each month via AutoPay, so there's no reason for all these extra payments.
To use your CC in YNAB simply log your CC transactions in YNAB against your funded categories (just be sure the account for the transactions is your CC and not your bank account) and YNAB will move the money into your CC category to fully fund the ENTIRE CC payment balance.
This is how we handle our reward earning CC's, along with using DI to import the statement balance payments each month and it is really quite simple and we're always 100% reconciled.
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Steve said:
so there's no reason for all these extra payments.I agree that daily payments are extreme and almost certainly unnecessary. But some folks have very low credit limits and do need to pay the card more often than once per month to avoid hitting the limit.
You might also pay down the card more frequently if you're trying to game your credit score. Lower your utilization % so that you can eek out a few more points, possibly before applying for a new loan and trying to get the best possible rate.
Otherwise, yeah, autopay (statement balance) is the way I'd go.
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ynaber2613 said:
I know that financially I could wait till the last moment to send the man his money for the CC balance but that is not what I choose to do.Why not? Can you explain the reasons behind your choice?
I could even get a 0% card and pay the minimum payment for a year and then payoff the balance at the end of the year while my savings earns interest, do you do that? If not why?
Sure, yes, I've done that before on some large-ish purchases.
I don't take advantage of every 0% financing offer, because for smaller purchases the interest earnings aren't enough to justify the hit to my credit score and the overhead of having another account manage.
Also, the upfront discount from my 2% rewards card is enough to match-or-beat the 12-month interest-earnings potential for purchases less than $2000.
The point is, my decision is rooted in math and objective reasoning.
Everyone has reasons for the method they choose to implement and you should be more careful in questioning motives
This is a public discussion and the CC payment strategy you're advocating is... questionable. It's nothing personal, and I'm sorry if I've offended. Hopefully others who read through these discussions will find them valuable and draw their own conclusions.
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bret said:
ynaber2613 said:
I know that financially I could wait till the last moment to send the man his money for the CC balance but that is not what I choose to do.
Why not? Can you explain the reasons behind your choice?"Yes, I have found that it is much easier to maintain my accounts if I reconcile on a daily basis, it only takes a few minutes each day. I have my checking account linked to my credit cards and paying them off daily only takes a few clicks. As I mentioned earlier I do like to think of my credit cards as debit cards and desire to treat them as such. "
I could even get a 0% card and pay the minimum payment for a year and then payoff the balance at the end of the year while my savings earns interest, do you do that? If not why?
Sure, yes, I've done that before on some large-ish purchases.
I don't take advantage of every 0% financing offer, because for smaller purchases the interest earnings aren't enough to justify the hit to my credit score and the overhead of having another account manage.
Also, the upfront discount from my 2% rewards card is enough to match-or-beat the 12-month interest-earnings potential for purchases less than $2000.
The point is, my decision is rooted in math and objective reasoning."I also feel that my math is spot on and my reasons are also objective."
Everyone has reasons for the method they choose to implement and you should be more careful in questioning motives
This is a public discussion and the CC payment strategy you're advocating is... questionable. It's nothing personal, and I'm sorry if I've offended. Hopefully others who read through these discussions will find them valuable and draw their own conclusions."I know this is a public discussion forum and I have learned a lot from others. As far as you thinking my strategy to pay my CC's off daily is a questionable strategy I guess you are entitled to your opinion, it makes perfect sense to me. You are the one that challenged my commitment to YNAB earlier as well as stating that my reasons are emotional vs rational. If you wanted to know my reasons you should have simply asked rather than make accusations. As far as my commitment to YNAB goes, I am definitely committed to the principles and have accumulated a lot of cash and am debt free except my car, and that was by choice and can be paid off any time. I am not necessarily committed to the nYNAB implementation as I have converted my credit cards to checking accounts and have created a category for income for next month. I do like and use many of the other new features, especially goals. I think we all have different methods of implementation and that is perfectly OK.
Your apology is accepted. I do not like going back and forth answering personal attacks, I do not like conflict. I also apologize for responding so strongly and hope I have not offended you in any way. Look forward to reading more of you posts in the future"
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