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Using your Credit Cards

Spending with your credit card

Before you do any spending on your credit card, it’s important to understand how YNAB treats the existing balance on the card. YNAB will draw a line between the spending that took place before you started YNAB, and the spending that takes place afterwards. But first, you’ll need to set up the account.

If you have a line of credit (HELOC) that you spend from regularly that carries a negative balance, it would be handled exactly the same as a credit card.  

How do I set up my credit card?

Click on the Add Account button to add your credit card. Complete the information for your card and when you are finished, click Create Account. Make sure you choose Credit Card as the account type.

In order to make sure you have the correct balance, log on to your credit card account online, and find the most recent balance listed there.

The balance on the card is a debt that you incurred prior to working with the account in YNAB, but dealing with it must be part of your current budget plan.

YNAB creates a starting balance transaction for you with with a new category that matches the name of your credit card account.

The title of this category will be Pre-YNAB Debt: (Name of Account) and it is also added to the Budget.

The starting balance appears in the Outflows column. The red arrow in the Balance column means the negative balance only affects this category and has no impact on the rest of your budget.

The balance on the credit card is basically an IOU.  When you enter your starting balance, you’re telling YNAB, “I owe some money to this credit card.”  When YNAB creates the Pre-YNAB debt category, it’s saying, “Ok, I see you owe the credit card some money, let’s keep track of that here.”  

Before we learn how to budget for this debt and manage payments, let’s take a look at how to plan for new spending on the credit card.

How do I plan for new spending on the credit card?

With YNAB, your spending decisions are much more important than your payment methods. So if you are planning to continue using your card for spending, make sure you budget for those expenses.

This sets you up to use the credit card as if it were a debit card. For example, if you have a credit card that you use for groceries and gas, budget for groceries and gas when you are paid. You can be confident that the money is set aside for those things. Just make sure you make your spending decisions by checking the budget.

How do I record my credit card purchases?

First, check your budget and make sure you have money budgeted for the expense.

Record spending with a credit card the same way you record spending from a checking account. Click on the account where the transaction occurred and enter a new transaction, categorizing it to the appropriate category.

Let’s look at an example of purchasing groceries with a credit card.

Let’s say you have a MasterCard that started with a $570 balance. First, check your budget to see if there’s money for groceries. There is:

Since you are using your MasterCard for the purchase, record it in that account:

Since the transaction was categorized for groceries, it shows up as an outflow in the grocery category on the budget.

The account balance on the MasterCard account has gone up, but the debt on the MasterCard has not.

The money for the groceries will sit in your checking account until it’s time to pay the bill. When you use your budget category balances to guide your spending decisions, there’s no danger you will spend those dollars on something else.

In fact, because your checking account will be holding those committed dollars, it’s critical that you use your budget to guide your spending decisions.

Learn how to pay off your credit card.