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. 

    Reply Like 5
  • 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.

    Reply Like 2
      • WordTenor
      • Your lieutenant, when there's reckoning to be reckoned.
      • WordTenor
      • 2 mths ago
      • 4
      • Reported - view

      Patzer The float is why I don’t start with telling people to make it a checking account. I would say more people than not who are frustrated with the payment category going red are floating.  Some of those people have enough money to immediately get off the float, some do not. 

      Reply Like 4
      • bret
      • bret
      • 2 mths ago
      • 3
      • Reported - view

      WordTenor 

      The OP here says that (s)he "pays off the card every day."  Seems like a safe bet they're not floating and are prime candidate for the workaround that Patzer suggested.

      I'm happy to spread the gospel on that workaround and share it with anyone who claims to be a paid-in-full credit card user -- with all the usual caveats about the float. I personally wouldn't use YNAB without this workaround, and most folks I share it with seem grateful to hear about it.

      Reply Like 3
      • bevocat
      • Sometimes, It Just Sucks to Be You
      • bevocat
      • 2 mths ago
      • 2
      • Reported - view

      bret I guess I've grown accustomed to the way the credit cards work now. When I started three years ago, I was paying off credit card debt, so I guess it was in my own best interests. Now that I'm a PIF credit card user, I have tried making some cards checking accounts but I didn't like it. Probably just because it was not what I was used to by then.  It's second nature to babysit the payment category now when I have returns or statement credits. To each their own, I suppose.

      Reply Like 2
      • bret
      • bret
      • 2 mths ago
      • 8
      • Reported - view

      bevocat 

      The clumsy mechanics -- the tedium of babysitting a category -- is only part of my problem. It's really the philosophy underpinning those mechanics that I struggle with.

      You say you tried the checking account working but just "didn't like it" and that it's not what you were used to.  I have the opposite problem: I just don't like the YNAB mechanics because I'm not used to worrying about payments. I don't even consciously think about them; all my cards are setup for auto-pay.  And on the spending side, I don't think about credit-card purchase as a two-step process (i.e. first make the purchase, then payback my creditor later) Instead, I've always regarded my credit card as simply an alternate method-of-payment, and I consider my money spent the moment I swipe my card.

      In other words, I have a "same-as-cash" attitude toward credit cards that predates my use of YNAB.  But the software actively fights against that attitude; it's loaded with mechanics that are designed to remind me that credit card spending is not the same as cash spending. It wants me to obsess over my payment, which takes focus away from the spending.

      I'm passionate about this topic because I firmly believe that my attitude is better and leads to better financial outcomes. It's an attitude that everyone should aspire to adopt, even if it's unfamiliar at first (old habits die hard.) I think YNAB does a disservice to its users by nurturing the attitude that credit-card spending is fundamentally different than cash spending and should handled differently in your budget; I think that's the attitude that gets many folks into trouble in the first place.

      /off soapbox

      Reply Like 8
      • bevocat
      • Sometimes, It Just Sucks to Be You
      • bevocat
      • 2 mths ago
      • Reported - view

      bret You can have your cards set to automatically pay in full and view your cards as simply an alternate spending method and still use the out-of-the-box credit card behavior. I have passionately argued that when you swipe that card, the money is spent, even if YNAB lets you go grab it out of the payment category and repurpose it elsewhere.

      (Edit to add: actually, at least one of my cards does not have an option to autopay the statement balance in full, but only the current balance, minimum payment or fixed amount. It's a real thorn in my side, so that's the one card I don't have on autopay. I'll pay them exactly what is due them at the time it is due and no more, thank you.)

      So assuming arguendo that we have the identical philosophy behind credit card use, what's the rationale for converting my credit cards to checking accounts when I'm already comfortable with them the way they are?

      Reply Like
      • bret
      • bret
      • 2 mths ago
      • 3
      • Reported - view

      bevocat 
      The immediate tangible benefit is not having to babysit a payment category (which is useless to a paid-in-full user.)  Fewer clicks, fewer opportunities for mistakes (esp. costly ones where YNAB silently grows your debt), and less clutter on your budget screen so you can focus on more important things. All wins.

      The less tangible benefit is how the workaround reinforces a mindset that (IMO) leads to better decision-making. Being a paid-in-full card user is much more than just a status (i.e. two numbers in a budget that happen to match). It's a mindset.  It's a belief that credit card overspending is just as intolerable as cash overspending -- none of this silly orange/red distinction!  That failure to address overspending is always a mistake (that YNAB ought to highlight) -- it's never an intent to add new debt! And that a payment is no different than any other transfer between accounts -- a cash-management activity and not a budgeting one.

      When I setup my credit cards as checking accounts, YNAB becomes my ally and helps me put those principles into practice. With the default mechanics, YNAB is my enemy; in works against my principles and punishes me with extra clicks.

      Reply Like 3
      • bevocat
      • Sometimes, It Just Sucks to Be You
      • bevocat
      • 2 mths ago
      • 1
      • Reported - view

      bret I agree with your assessment of one way forcing you to adhere to this principle and the other way forcing you to put in extra work to ensure adherence. I completely agree with your philosophical underpinnings and yet it is still possible to reach the conclusion that sticking with the stock functionality can work fine.

      Reply Like 1
      • Gypsy_RN
      • Magenta_Robot.1
      • 2 mths ago
      • Reported - view

      bret This is fantastic and just what I've been struggling with! thanks

      Reply Like
    • Patzer , So if my non mortgage/loan spending is $9,000 per month I budget that on my credit card AND in my specific line items?

      Reply Like
      • Patzer
      • Retired at age 60. Thank you, YNAB!
      • Patzer
      • 2 mths ago
      • 3
      • Reported - view

      Blue Wizard

      Blue Wizard said:
      Patzer , So if my non mortgage/loan spending is $9,000 per month I budget that on my credit card AND in my specific line items?

       No.  Let me put a few bogus numbers into an example:  Suppose you spend an average of $9,000 per month on your categories, pay your credit card in full each month, and when you start YNAB you have $4,000 of outstanding charges on your card that will be paid the next time a bill is due.

      When you set up YNAB, you budget $4000 to the credit card payment category, recognizing that you have already spent $4000 on the card before you started budgeting.  This is necessary because the YNAB default (if you mindlessly click "next" and "decide later" when setting things up) is to assume you are carrying $4,000 of credit card debt that you will need to work to pay down over time.  As a paid in full user, this is not the case.  You should have $4,000 in checking or savings accounts that will be sent to the card when the bill is due in order to avoid paying interest.

      After you budget the $4,000 to your credit card, you are left with an amount To Be Budgeted that is equal to the sum of all your on-budget cash, checking, and savings accounts, less the $4,000 that is committed to pay for spending that happened before you started budgeting.  You budget money to categories other than the credit card payment category until TBB is equal to zero.

      When you spend using the credit card, YNAB does a few things behind the scenes.  Say you put $100 on the card to buy groceries.  YNAB reduces the Available for your Grocery category by $100, and increases the credit card payment category by $100.  You don't see any change in total amount Available in the budget, it just shifted from Groceries to card payment.  Say you had budgeted $500 to Groceries, and this is your first on-budget purchase.  Now, you have $400 left in the Groceries category, and $4,100 in the credit card payment category.

      When you pay the credit card, you record a transfer from checking to the credit card with no category.   Say you pay $3500, because that is the amount of the statement balance and all you need to pay to avoid being charged interest.  The obvious impact of the transfer is, your checking account balance goes from, say, $10,000 to $6,500 and your credit card balance goes from (in this example) -$4,100 to -$600.  Behind the scenes, YNAB reduces the card payment category by $3500, so it becomes $600 and stays matched to the card balance.

      Things that can go wrong:  If you overspend a category where any part of the category was spent using a credit card, YNAB helpfully assumes you intended to add to credit card debt.  You need to fix this on the budget page by moving money to the overspent category (if in the same month) or to the credit card payment category.  If you record a cash back award as a statement credit with a category of TBB, YNAB does *nothing* to any category balances.  You need to fix that on the budget page by moving money from the card payment category to TBB.  If you purchase a gift card that you intend to keep on budget and track in YNAB, YNAB helpfully assumes that this is a cash advance and you intend to add credit card debt.  YNAB puts the amount that you paid for the gift card into the budget as TBB.  You need to fix that on the budget page by budgeting the amount put into TBB back to the card balance.  Two of these things are designed features of YNAB, the other is a bug that YNAB does not admit is a bug.  There are some less common bugs that can make the card balance and the card payment category diverge; you fix any of them on the budget page by making the card payment category match the card balance, with opposite sign.

      Patzer's commentary:  This dance with the card payment category seems awfully irrelevant for a paid in full card user.  It seems like there ought to be a way to ONE TIME budget for the pre-YNAB outstanding charges, then just forget it.  But there isn't.  That's why my cards are set up as checking accounts, which implicitly reserves the card balance to pay the card by removing it from TBB in the first place.

      Reply Like 3
      • ynaber2613
      • ynaber2613
      • 2 mths ago
      • 2
      • Reported - view

      bevocat The stock functionality of credit cards can work fine but often creates confusion for paid in full cards.  

      Example: I had just paid off my credit card (0 balance) and later overspent a category using a debit card, that category turned orange and the credit card category showed orange as well even though I did not make that last purchase with a credit card.  I did have previous purchases in that category using a credit card but all of those transactions were reconciled and as stated the credit card balance was 0.  YNAB does not have the fidelity to differentiate first in first out for category spending.  It wrongly assumed that the last transaction overspend was caused by the credit card.  Things even get more complicated when more than one credit card was used for that category.

      I like to think of my credit cards a debit cards, once money is spent it is gone.  I also think that all overspending should be red and all under budgeting should be orange.  Once I set my CC up as checking accounts YNAB became much more simple.

      Reply Like 2
      • bevocat
      • Sometimes, It Just Sucks to Be You
      • bevocat
      • 2 mths ago
      • 1
      • Reported - view

      ynaber2613 Maybe using the toolkit obscures this. I handle all overspends immediately (realistically, I deal with them before they're ever overspends), no matter what payment method I use, because when I make a purchase the money is spent right then.  Just like you.

      Reply Like 1
      • bevocat
      • Sometimes, It Just Sucks to Be You
      • bevocat
      • 2 mths ago
      • 1
      • Reported - view

      bret Fine. I set up my credit cards all as checking accounts; are you happy now?! 😄  It felt kludgey and I may not keep it that way, but everything's all balanced and everything because I'm a PIF user. It'll be less work for me to manage. We'll see if I actually notice enough to care.

      Reply Like 1
  • When you first started YNAB did you budget for the charges that were already on your card?

    Reply Like 1
    • satcook I did not have these cards when I started YNAB. Added later. 

      Reply Like
  • 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.

    Reply Like 1
  • 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!

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

      Faness 

      Faness said:
      budget enough towards your credit card category to make the credit card category Available amount match the credit card category

       Slight correction, the CC Payment category Available should match the CC account balance (as a positive number) for a paid-in-full card, which yours seems to be.

      Reply Like
    • Thank you, dakinemaui ! My fingers got ahead of themselves! :)

      Reply Like
    •  OK, dakinemaui &  ,

      I seem to be running into the problem when the balance and payments don't equal zero on the last and first days of the month. I do my budgets month to month, not for the whole year. It seems like my budget shows more and more of a deficit at the end of each proceeding month. So I budget the balance at the beginning of the month even if it is $.20 and then all my debits and credits show as zero activity by the end of the month (or very close to it?). I don't know why this has to be so confusing for those of us who don't carry a balance. It's like punishment. 

      Reply Like
      • WordTenor
      • Your lieutenant, when there's reckoning to be reckoned.
      • WordTenor
      • 2 mths ago
      • 5
      • Reported - view

      Blue Wizard If you're using the card constantly, and paying the statement balance your card available and your card payment category will never equal zero. The only reason they will ever equal zero is if you actually pay the card in its entirety, at which time both numbers will briefly be zero, but only until you buy your next budgeted thing. This has nothing to do with any date of any month.

      What matters to the budget is that they match. If you have $1234.56 charged to the card, the card payment category should have $1234.56 in it. If it doesn't, something has gone awry. It doesn't matter if your payment is then $345.67, so long as there's at least $345.67 in the category. 

      Reply Like 5
      • WordTenor
      • Your lieutenant, when there's reckoning to be reckoned.
      • WordTenor
      • 2 mths ago
      • 4
      • Reported - view

      Blue Wizard To add--because you pay your card off every day (which I cannot emphasize enough, you do not need to do), when you pay it, you will briefly see those numbers become zero. But only until the next transaction hits.  

      Reply Like 4
  • 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.

    Reply Like
      • bevocat
      • Sometimes, It Just Sucks to Be You
      • bevocat
      • 2 mths ago
      • Reported - view

      Steve That is a useful method for those who have high enough limits to accommodate the monthly spend. If you have a really low limit, you're going to have to pay it off several times a month.

      Reply Like
  • 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.

    Reply Like 1
      • ynaber2613
      • ynaber2613
      • 2 mths ago
      • Reported - view

      bret You do not have to have a low score or a low CC limit to pay off daily.  I have a very high score and limit on my CC's but I pay them daily because I like to keep things balanced out and also like to think of my CC's as debit cards.  It also seems easier to me to keep everything reconciled on a daily basis.

      Reply Like
      • bret
      • bret
      • 2 mths ago
      • 5
      • Reported - view

      ynaber2613 

      Ehhh....  You're preaching to the choir re: "think of CC's as debit cards."  But I'm not sure how paying daily helps with that.

      Firstly, there's a real-world cost to what you're doing.  By overpaying the statement balance -- giving the creditor money before they asked for it -- you're giving away potential interest earnings.  At today's rates, and with my average household monthly spending, that's about $100 / year for me.  That's free money I'm happy to collect, especially because it requires no effort on my part.

      Speaking of effort -- dozens of payments per month (and reconciling all that activity in YNAB) sounds like a real pain the butt.

      I also question your commitment to the YNAB method if you feel it necessary to pay the balance to $0 to reinforce the "same-as-cash" attitude. Yes, it's true that when I delay paying my creditor, I temporarily have money in my bank accounts that I shouldn't spend on other things.  But that's totally fine -- my budget is my source of truth, not my account balances, and my budget tells me the money is reserved for the card payment. 

       

      But I suspect your motives are emotional and not strictly rational. That's OK -- personal finances are personal. As a fellow "same-as-cash" guy, here's my perspective on CCs:  They're just checking accounts with a negative balance.  Once per month, my creditor asks me to transfer $x to the account to avoid penalties, so that's what I do.  End of story.  It's hardly any different from a checking account that has a minimum balance requirement.  Just cash-management stuff to keep accounts in good standing.  

      Reply Like 5
      • ynaber2613
      • ynaber2613
      • 2 mths ago
      • Reported - view

      bret I don't think you know me well enough to question my commitment to the YNAB method or suspect that my motives are emotional vs rational because I pay my CC's daily.  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.  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?

      The op of this post indicated he pays his CC daily and others started wondering why he does that (improve credit score, low limit on his credit cards...).

      Everyone has reasons for the method they choose to implement and you should be more careful in questioning motives.  I do appreciate reading about other peoples  methods and have learned a lot from reading about them.  The method I have chosen makes sense to me and actually is very easy to maintain.

      I hope I do not sound harsh with you but I do not appreciate you questioning my motives or rationality.

      Reply Like
      • bevocat
      • Sometimes, It Just Sucks to Be You
      • bevocat
      • 2 mths ago
      • 1
      • Reported - view

      ynaber2613 When I got a zero-fee 0% APR balance transfer offer from my credit union, yes, I certainly did just that. I've got $5k sitting in a category waiting to pay off that credit card next month that I've been earning sweet, sweet interest off of all year. I've got cards with better cash-back rewards that I use for my daily drivers. Now this one will go back to being a useless account that isn't adding anything to my finances except average-age-of-credit and improving my utilization.

      Reply Like 1
  • 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.

    Reply Like
  • 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"
    Reply Like 2
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