YNAB BLOG

If your credit card doesn’t automatically pay itself off, it’s time for a new credit card.

Green VisaI enjoy credit card rewards, but I don’t ever want to carry a credit card balance again. YNAB and my two credit card providers have safely automated my credit card usage.

YNAB’s role is to help me give every dollar a job, ensuring I don’t spend more than I bring in. Because I use my budget to make spending decisions, I don’t have to keep track of my credit card balance (just like I can ignore my checking balance).

I put every possible purchase on the credit card, earning points that pay for the occasional weekend getaway with my wife. All is well – as long as I don’t forget to make the payment on time.

Luckily, both my credit card providers (Capital One for personal stuff and Chase for my side business) allow the card automatically pay itself off each month. I logged into my online account, set the card to draw the full balance from my checking account on the date due, and that’s it – all the convenience and rewards of the credit card with no risk of fees or interest charges.

YNAB is the key to my safe, automated use of credit cards. Without my budget to guide my spending, I’d have to play the normal game of comparing my credit card and checking balances to avoid heavy interest. I’m afraid too many people lose that game simply by forgetting to check in.

If you don’t have YNAB, download it now and use it to guide and simplify your finances.

If you have YNAB and use credit cards – see if you can set the cards to pay themselves off monthly. It’s a tidy little system.

31 Responses to “If your credit card doesn’t automatically pay itself off, it’s time for a new credit card.”

  1. egsiegel

    you should change your business CC to capital one also, you can combine the rewards and use purchase eraser…earn points when you buy the flight and erase the purchase within 90 days….my partner and I both have our business CC with capital one and all home purchases….the rewards add up FAST

  2. Agamede

    I’m a big believer in automation, but this is the one thing I can’t bring myself to do. If I manually authorize the payments, I’ve double-checked the amounts and know it’s being paid before the deadline. If it’s an autodebit, I have to trust the bank/credit card issuer to take care of everything.

    I do pay my student loans by autodebit because I get an interest rate reduction for doing so, but the experience certainly hasn’t been trouble-free. On one occasion, my due date fell on a weekend, delaying the payment. Usually that’s fine, but in this case my account got kicked to past due status. I got three phone calls demanding payment– one to my employer!– before it got straightened out. I was embarrassed and furious.

    • LeiraHoward

      Agamede, I’m with you there. I have some fixed amount payments (mortgage, etc.) that are automatically debited, and those all give me interest rate deductions (and are credited on the day due/scheduled, even if the money doesn’t pull til the next business day) but I would NEVER have a variable amount debited from my primary checking account.

      I can see two very MAJOR potential problems with this:
      (1) The credit card company could mess up and pull too much from your account, leaving you with too little funds in your checking and a lot of hassle to try to straighten it out. You hear anecdotal stories about this with utility companies all the time on the news.

      (2) If there are unauthorized purchases on your account that you do not catch, and you pay them off, you may have a LOT more problems trying to dispute the charge, depending on the credit card company. (You:”That’s not my charge, I shouldn’t have to pay for it…” Them: “But you already paid it….”) Having to manually look at your credit card balance when you pay it off makes it much more likely that you will catch any errors BEFORE you pay for them.

      Mark, I like a lot of your articles, but this tip just seems dangerous. You’ve traded off one risk for another. And for the sort of person who is going to neglect to pay their bill on time due to forgetfulness, they are likely to be caught unawares if one of the above scenarios happens to them.

  3. heather

    This tip may help someone… I have a couple monthly bills that have variable totals each month that I can’t pay automatically (credit card in full, utilities, water). For each of those bills, I set them up as a Scheduled Transaction in YNAB, but I put “PAY BILL” in the memo field, and I leave the amount blank. Its date is set to a few weeks before the due date. When it pops into YNAB, I go pay the bill, enter the amount, and remove the memo. This works great as a reminder, and I’ve never missed a due date since starting this system.

    I use a great rewards card, and I pay it in full… but I didn’t know some cards let you auto-pay the full amount each month. I’m going to check into it. Thanks!

  4. colodude

    Having had false charges appear on two cards in one year, it’s still worth reviewing the card (which is what I do) once a week for odd charges. If I know I didn’t make them, I ask the missus. If she didn’t make them, I ask the card. Notice I said “the card”. When the other card had one of those events, I just had USAA lock it without replacement and we attacked it with both barrels and paid it off. We’ll soon be back to zero on “the card” in a couple of months, whereupon I will do exactly as you do–autopay it to zero each month, with a review for cheaters once a week. (Our card is a cash back with alternative bennies: living in a small town, I can ignore those). It will be nice to take that cash back on put it in the travel fund.

    I also had a card I hadn’t used in 12 years (dormant account, they call it) suddenly have a false charge, so don’t assume keeping extra cards to boost a credit score is without risk.

    • mark

      Right – I review every transaction because I enter them directly into YNAB. This approach just allows me to skip writing the check or making the online payment – so I never have to be aware of the card balance.

  5. Chris

    Heather, that is a great idea! Thanks for sharing

  6. jbcampo

    I would not be able to do this. As you say, I charge my daughter’s college tuition on the card, and currently have one with no interest till June. If I let the company autowithdraw that amount, it’d bounce big time. I admit I am a casual YNABer because my cash flow has gotten better, so I’ve eased off the budget gas pedal a bit. I would still really hesitate to let it deduct the whole amount of the bill automatically.

    Seems to me that either way, I need to look at the cc bill and make sure the bank account has that money, one way or the other, via YNAB or the bank. It’s not much more work to then pay the bill from the online banking.

    • mark

      Hi JB – Right – if you’re carrying a balance, this approach doesn’t work.

      As to having to look at the cc bill to see if the checking account has the money to cover it – that’s actually the point of the post! Using YNAB allows me to ignore the cc balance because I know I’m not spending more than I have available.

  7. Timothy

    Don’t credit cards accrue interest daily though? Let’s say I make $200 worth of charges on the card throughout the month. If I wait until a statement is issued (and therefore a payment due) have they not already made their finance charge?

    My method for the card that I have actually paid off yet still use constantly (and wipe out each month) is that I make the payment on the card as soon as the credit card company records the transaction. Ideally, I would like to just spend the $200 and then send them the payment from my bank like that instant, but Citi won’t allow you to send them a payment for larger than your balance (so if you don’t have a balance, you don’t have a payment).

    Please correct me if I am wrong about the interest thing. I’d love to just let the thing pay itself off, but I am cautious about the stupid interest fees. I already got hit by BoA…..paid off the card in full and then a few days later it had an $11 balance because of finance charges.

    • mark

      The key is to pay the statement balance by the statement due date. When I set my card up to pay itself off, I went to the trouble of talking to Cap One’s live chat to ensure there would be no interest or late fees – ever. They assured me there wouldn’t be, and there haven’t.

      • Timothy

        I’m wondering if that policy is creditor-specific?

      • mark

        Hi Timothy – I’m sure there are card providers not yet offering this feature, which is why I’m encouraging people to switch to one that does. :)

      • Bob

        Until they change their terms of service again…

    • LeiraHoward

      All of the credit cards that I have accrue interest daily. HOWEVER… they also have what is called a “grace period.” Basically, that means that if you pay off your purchases IN FULL by the statement due date, they waive the interest. In the United States, federal law (from the credit card act of 2009) states that all credit cards must have a minimum of 21 days of grace period, which STARTS on the day that they issue your statement.

      So, for instance:

      You charge $1,000 on January 1st.
      Your statement is issued on January 8.
      You have until January 29 to pay your statement balance IN FULL.

      If you do pay the statement balance in full by the due date, you owe NOTHING in finance charges.

      If you pay the minimum payment (or more) but NOT the full amount, you will owe interest on the $1,000 from January 1st through the date that you paid, PLUS you will keep accruing interest on the amount you did not yet pay. (This remaining balance is no longer in a grace period, and probably is the reason you had that $11 in finance charges. The charges were for the final month’s worth of interest. My guess without knowing the details of the situation.)

      If you pay NOTHING, you will owe all the interest, plus late fees, plus your interest rate may go up.

      Does that make sense?

  8. Lisa

    I just told my husband that we should start doing this with one of our reward cards now that we’re disciplined YNABers. We could really be escalating our rewards, and there’s never any fear of NOT having the money to pay it off each month!

  9. Seth P

    I work with debit cards and fraud regarding debit cards. After working with them, and understanding the regulations between debit and credit cards. My wife and I switched to credit cards only. We both carry a debit card, but in a rare occasion do we use them. Debit cards allow access directly to your money in your account. Credit cards do not. With that said, if we were not extremely disciplined to the use of YNAB, then maintaining credit cards would be a nightmare! As the guy on the other end of the phone dealing with customers and debit card fraud, I encourage everyone I know to use credit cards AND YNAB. It’s a win win!

  10. Scott Weatherhogge

    Great article and we would love to do what you say but I can’t quite because I have a visa card with a puny $500 credit limit. And they won’t give me something higher at this point. I would love for you to write an article about how to play this building-up-ones-credit-card-credit. Here’s our story:

    We hit a financial crisis years ago, my wife and I, and we shredded up all our credit cards. We went totally debt free including paying off our 30-year-mortgage. Then we learned about YNAB and are loving it. I recognized right away that if one faithfully implements YNAB all that you say above becomes possible. So I started applying for credit cards thinking that it would be easy. I thought, “I’m just the guy they’re looking for; I have no debt and I make $70,000+ a year”. How wrong I was. It took me almost a year just to secure the present card I have. I’d love to work up the credit card ladder and put this thing into high gear. Advice? Article? Love your work.

    • Minda

      Actually you are exactly what they don’t want, a responsible user that will never pay any fees. They won’t make any money off you. Your credit score is partly the number of accounts you have open and it only counts debt. So your credit score is best when you are have several debt accounts with small balences.

  11. Bob

    I still say it’s safer to just not use credit cards at all. The rewards points aren’t going to make you a millionaire. But the snakes that run these companies are doing whatever they can to get your money. You may think your safe now, and you’re ‘winning’ at their game, but you will eventually get caught on some technicality somewhere someday.

    This is not just “Dave Ramsey Kool-Aid’ – I speak from experience!

  12. B

    I love automation, but having privacy concerns in the age of identity theft, I don’t like signing up my checking account at N different vendors (phone bill, water bill, credit cards, mortgage, heck, even my homeowner’s association, etc). I much prefer to choose control automated payments from a single point – my bank (actually my local credit union), who I trust more than N different vendors.

    My bank supports subscribing to bills for supported vendors so that I can set up an automated payment for those bills. My bank also supports emailing me when (a) the bill arrives and tells me how much it is and when it will be automatically paid (due date), (b) then again when the payment goes out (recapping the amount and dates). (I’m on the fence about receiving these notifications because email is not a secure medium unless encrypted and signed.) Between the two emails, there’s plenty of time to make changes if something is amiss. One nice bonus – this feature is consistent across my subscribed bills.

    For unsupported vendors (or supported vendors that I don’t wish to fully automate), I set an automated payment to go out on a given day each month, choosing a fixed payment somewhere above the highest likely minimum payment but below or around the average monthly payment. I will usually intercede each month between when I get the bill and when it is due and change the payment amount to match the actual statement balance. I will very rarely forget to intercede, especially given I’m regularly downloading transactions for YNAB, plus I have a YNAB scheduled transaction to remind me. However, if I do and my automated payment was less than that month’s balance, then at least the minimum was paid, so no late fee. If I forget and the automated payment was more than the statement balance, well, its a good thing I’m buffered and the overage will simply count against next month’s bill.

    ===
    TL;DR If your bank doesn’t automatically pay bills for you, maybe its time for a new bank (or even better – local credit union).
    ===

    One exception – if a biller will let me pay my monthly bill with a credit card, then I’ll use that for the points; or I will, at least, until the credit card companies offer automated bill subscription and payment. (Okay – I’m still concerned I may forget, so I still automate the payment at the bank website, but then each month, I manually pay with credit card when the bill arrives and then cancel the automated payment that month.)

    P.S. I love YNAB.

    Speaking of privacy, here’ my protip: my account names are names like “primary checking”, “Roth IRA”, and “mortgage”, names that do not include the real vendor names. Why? When I recently requested my annual credit report, the proof-of-identity questions included questions like “You may have a mortgage at one of these banks – which one?” – this is information may be gleaned from my YNAB data file if I put the bank name in the account name. I don’t trust Dropbox (or the cloud really) but I love the syncing, so that’s my compromise. (I’m so paranoid that I think I would have nightmares if I were to put the account number in the description/comments.) (BTW, please support Bittorrent Sync in the future.)

    In fact, I think the fact that YNAB does not do automated downloading from the banks/vendors is a good security feature – because now it does not need the vendor names or account numbers and such data does not need to travel with the file into the cloud. In fact, if you do add an automated download feature in the future, consider keeping the account information and the budget separate (so one stays local and heavily encrypted, while the other can go into the cloud for syncing).

    B

  13. Becky

    I love getting paid to use credit cards. I love YNAB because now I can easily pay off my credit card balance every month without worry. It’s a win-win situation.

  14. Melissa

    Seth P, thanks for your comment. I have had the money siphoned from my debit card once, it was a stressful nightmare. I now treat my debit card like bringing a wallet to the beach. Only put money on there that you are prepared to have stolen. I still want to stay away from credit cards though. All my spare cash goes straight onto the mortgage. I don’t let a little bit of theft prevent me from going to the beach. What do you think? I do sometimes think about getting a credit card but then I read about all the people mismanaging them and I would be no different.

  15. Lisa

    I pay off my cc almost every time I reconcile, so once every week or so. This for me has been one of the coolest and most fun aspects of using YNAB!!! Because the money is from the budget, I ALWAYS have the money to pay my credit card off no matter where we are in a month. No more getting in trouble with credit cards!

    Practically every time I send in a payment I call or text my sister to tell her about it, “Pay day is still three days away, and I just randomly paid off my credit card!” She’s probably getting a little tired of that, but oh well, I am just always so happy to see $0 in the balance.

    Automatic payments would really cut out the thrill of the thing for me.

  16. Rachel

    Lisa & Heather–thanks for the tips on how you pay the CC bill and schedule transactions for variable bills. We’re in the third month of successfully using YNAB and are so thankful for the freedom it brings–knowing the money is there to pay off the credit card bill (which I will start doing weekly), and getting the rewards for vacation, etc. It wasn’t easy to switch the budgeting mentality (from Quicken), but it’s been worth it. What a relief to be guided by my budget, not burdened!

  17. Susan

    I also would never allow a variable amount to be automatically deducted from my checking account. Whenever I get notice of a bill due, particularly utilities, I schedule the payment from my checking account after validating that the amount is correct. With credit cards, I’m totally on top of what amounts have been charged to a particular card (thanks to YNAB), and more often than not, schedule a payment from my bank before any kind of statement is generated.

    Kudos to all of you who totally get that credit cards are just another method of payment for goods and services, not an indirect source of additional income or some kind of financial crutch. Think of them as you would a debit card, but with much greater protection from fraud. I use them for convenience. If I get some rewards or points thrown my way, fine, but that’s just gravy.

  18. Bruce s

    I do not have a credit card anymore. I can do everything a credit card allows me to do with a debit card. You get the same protections using a debit card that a credit card gives you as long as you have it processed as a credit transaction, and you don’t risk a late payment due to human error. Rewards are a joke. You spend far more using credit than you do when spending cash.

  19. Ken Kaufman

    I made a commitment to use no credit cards in 2014. So, while this post does not apply to me, I think it overlooks a challenge that even the credit cards with great rewards programs have.

    My experience has been that having credit cards can create a false sense of security that a full-funded emergency account should fill. Even when you pay the balance off every month, that large credit limits begins to feel like a backup plan if an emergency happens. In reality, this is what the credit cards companies are hoping for, happily giving away rewards to all of those diligent customers who pay off the monthly balance and never incur any interest or late fees. Think about it. If you lose your income or have a medical emergency that throws you for a financial loop, not paying off the credit card balance becomes a temptation along with continuing to use the card through the emergency.

    An emergency fund full of cash should serve that purpose, so we have to be careful not to allow ourselves to consciously or subconsciously allow ourselves to fall into the mental trap that the credit card is any sort of backup plan. YNAB doesn’t solve that problem.

    I learned this from my personal experience when I stopped using my credit cards this year. I felt a weird stress, and quickly realized I was feeling less secure with my finances. Funny that a credit card would make someone feel more financially secure, but it happened to me. So I’m guessing it could happen to others, too.

    Just my perspective. Thanks for the great post.

  20. Seth P

    @Melissa – one nice thing about a debit card, federal regulations require there be a daily spending limit on the card. At my financial institution I work at ours is $200/day. Rather low, but that minimizes risk. While credit cards don’t have a daily limit, your not out the physical cash when your information is compromised. With a credit card, you can always request from your CC company to have your limit lowered if they continue to raise your limit. We have done that with Discover.

    As for applying for a CC; I think it heavily relies on your ability to manage it in YNAB. My wife and I were talking about this very article last night in bed. Because we update YNAB often, it allows us to manage our credit cards. One of the most painful things for me is seeing any of out line items in red! That drives me crazy. YNAB helps us by managing the credit card monthly.

    I’d maybe suggest seeing if you can apply for a small CC with a low balance. Give it a shot and check your own discipline towards it.

  21. mikeeheler

    It’s a good idea in general, especially while in the process of getting your bills under control. I was doing this for a while, but these days I pay off my cards as soon as the statement is issued.

    I have two reasons for doing so. One is that none of my card providers let me do auto-pay any sooner than 1 week before the bill is due, and some only have the option to auto-pay on the due date. Consider a transaction you make on the first day of a new billing cycle. A month passes before the statement is issued, and another month passes before the auto pay.. you’re not held accountable for that transaction for 2 months! Personally, I want to keep my debt/assets ratio as close to zero as I can.

    The other issue is of course credit utilisation. When you’re carrying around the balance and just letting auto-pay take care of things, you’re running the risk of having the balance reported to the credit bureaus of being over 20-30% of your limit and that can hurt your score. For this reason I sometimes even issue a mid-cycle but then I try to keep my utilization between 1 and 5%.

    A benefit to doing this, of course, is that you can collect interest in your savings account while the cash is on deck waiting for the automatic bill pay. If you’re floating about $1,000 in monthly spending on your card, that can net you a cool 75 cents a month. Worth it!

    Anyway, good post and I’m just nitpicking.

    Oh one side note: Bank of America is awful for this. If you can find their auto-pay form, which they have dutifully buried for some reason, you’ll find that they’ll transfer your full statement credit on the auto-pay date regardless of any payments you have made during the month. More than a couple times I ran with a positive balance on my BOA card because of this, and they wouldn’t even pay me reverse interest! ;-)

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