Budget for Credit Cards | Getting Started with YNAB | Lesson 3.7


(upbeat music) – Credit cards are an
interesting way to spend money. Let’s think about that for a second. When you spend money on a credit card, you’re not actually paying for anything. The credit card company is
paying for that thing for you, and then eventually you pay them back. And that’s great, right, super convenient, get those rewards points. But how do we keep the money that’s meant for our
credit card payment away from the rest of our dollars? Well, YNAB handles this beautifully. The only thing you have to remember is that no matter how you
choose to pay for something, whether it’s a debit card, a credit card, or change from underneath
the couch cushion, you always check your budget first. If there’s money available to spend, you can choose to spend
it however you like. If you choose to use your credit card, why YNAB will set that
money aside for its new job: your credit card payment. In this budget, you can see I’ve already added my checking account. It’s got $3,100 in there. And I’ve given most of those dollars jobs. I’ve got $300 left to be budgeted. So let’s go ahead and add a credit card and see what that looks like. We’ll start by adding my Discover card. I’ll leave this unlinked for now, but you are to link those credit cards. I’m gonna select credit
card as the account type. Now, today in my Discover
card, I have a zero balance. And this would only happen
for one of two reasons. Either you just paid that card in full, or you have never used that card before. It’s possible that doesn’t
apply to you right now. Don’t worry, we’re gonna
get to a card with a balance in just a second here. All right, so we’ll go ahead
and add that new account. You can see I now have
a Discover card account over here in my accounts register. And this is a place for me
to record any transactions that happen on that Discover card. On my the budget, YNAB
creates a matching category for the credit card payment
on this Discover card. Well, now when I choose to buy something, just like if I was gonna buy
something with my debit card, I’m always gonna check my budget first. For example, if I were
gonna buy some groceries, I can see I have $350
available for groceries. Again, that represents actual
cash in my checking account. But I’m gonna choose
to use my Discover card because it’s convenient, or I get rewards. And when I do that, I’ll go
ahead and add that transaction to my Discover account. We go add that. It’s gonna be the grocery store. That’s gonna come from
my groceries category. And I just spent $75 today
at the grocery store. Well, right away, you
can see I now owe $75 on that Discover card. And there’s also more money
available for that payment. Let’s look at the budget. Now, remember, I had money
budgeted for groceries. But since I used my credit card, that $75 was removed from
my groceries category and added to my Discover
card payment category. So now that $75 will just sit there and wait for me to send it
for my credit card payments. But I’m assuming some of you out there are probably not starting
YNAB with a zero balance on those credit cards. Again, maybe you haven’t it
in full this month just yet, or perhaps you’re carrying a balance and gonna pay it off over time. So let’s go ahead and
add another card here. This time I’m gonna say
this is my Visa card. And today, I have balance
of $2,400 on that card. Now, when you add a credit card to YNAB with an existing balance,
you have to make a decision about that old debt that’s on the card. Remember, nothing’s recorded in YNAB. I don’t know what I spent that money on. Hopefully, it was something good. But what I do know is that
I’ll have to pay it back. So I’m gonna go ahead and
I’m gonna create a goal to pay off this balance over time. If you were gonna pay it in full, you’d budget for your entire balance. And I think I can maybe
have this debt paid off in, hmm, we’ll see if I can
do it in six months. That’s gonna be $400 a month. The thing is I only have $300
left to be budgeted right now. Now, if you’re not sure
how much extra you can pay towards your debt right
now, don’t stress too much. Play around with these numbers. You can always edit this goal later. I think I’m gonna push this back a little bit further to April. That’ll be $300 a month. That feels more doable for
where we are right now. All right, and just like before, you can see my Visa account
has been added over here in my account register. And on the budget, YNAB
creates a matching category for the credit card
payment on this Visa card. Now, I want everyone to
notice that my account balance over here does not
match the payment amount in this credit card payments category. That’s because those numbers
represent different things. The account balance tells me
the total amount of money I owe on my credit. And the credit card payment
category how much I can send for that credit card payment right now. Well, right now, I don’t have anything
available for that payment. So let’s do some budgeting to take care of some of
that old debt on the card. Again, I have that $300
goal that I wanna hit in order to pay off this debt
in the next eight months. And so I’ll go ahead and
budget that $300 right there in that Visa payment line. Now, if you plan to pay your card in full, you would budget the entire
balance right here, that $2400. But I don’t have enough
cash to do that right now, so I’m just gonna tackle
this debt $300 at a time. Now, the beautiful thing with this is even if you’re carrying
some old debt on the card, you are still able to
continue using that card. For example, let’s say
I was gonna buy some gas at the gas station today, and I wanted to use that Visa card. Maybe I get extra points
for that or something. I’ll go ahead and check my
transportation category first. Again, I’ve got $150 dollars
available in that category, and that represents actual
cash in my checking account. I’m just gonna use my Visa
card for convenience here. And this time, I’ll go ahead and say that the gas station gets my money. That’s gonna come from my
transportation category. And I just spent $40 at the gas station. Again, you can see that the
debt on my Visa has increased, but so has the amount
available for my payment. We’ll check that out on the budget here. You can see that $40 was removed from my transportation category and added to my Visa payment category. I now have $340 available
for that payment. But what about interest? I’m sure someone out there
is curious how interest works with YNAB, and I think
it’s important to point out that interest is a purchase. What are you buying when you pay interest? Well, you’re buying time. Time to pay back your debt. Permission from your credit card company to carry that debt for 30 days more. So we’re gonna record our interest just like we would any other purchase. You can see I have money
budgeted for interest and fees. I just got charged interest
from that Visa account here, so we’ll go ahead and
add that new transaction. The payee is who gets the money. In this case, the Visa
company gets that money. That’s gonna come out of my
interest and fees category. And we’ll say that I just
paid $25 in interest. Again, you can see that the balance on my Visa card increases, which is true when we’re
charged our interest. And on the budget, you can see that that $25 dollars is removed
from interest and fees category and added to my Visa payment category. It’s as simple as that. When you use a credit card, simply record your spending
in your credit card account. And if you check your budget
before your spending decisions, you’ll have to wonder if
you have enough available for your credit card payment again. (upbeat music)

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