YNAB and Credit Cards: Managing Your Finances

YNAB and credit cards may seem like an unlikely pair, but they can actually work together to help you manage your finances effectively. YNAB's (You Need a Budget) philosophy is built around living within your means and avoiding debt, but sometimes credit cards can be a useful tool in your financial toolkit.

Using a credit card with YNAB requires a clear plan to pay off the balance in full each month, as noted in the article section. This approach can actually help you earn rewards and build credit, as long as you're disciplined about paying off the balance.

By integrating credit cards into your YNAB system, you can take advantage of benefits like cashback and travel rewards, but be sure to prioritize paying off the balance in full each month to avoid interest charges.

For more insights, see: Is It Better to Make Multiple Payments on Credit Card

YNAB is a budgeting app that helps you manage your finances by assigning jobs to every dollar you earn. It's a simple yet powerful tool that can be used by anyone.

YNAB works by giving you a brief overview of how it differs from other budgeting and personal finance apps, so you can see how it fits into your existing financial routine. The app is designed to help you make the most of your money and achieve your financial goals.

YNAB assigns jobs to every dollar, which means you'll be using the "four rules" to manage your finances:

1. Give every dollar a job

2. Save for true expenses

3. Live on last month's income

4. Roll with the punches

Using a credit card creates debt, and YNAB removes ambiguity by moving that money into a "Credit Card Payments" budget category.

You're always aware of the debt you've created with this approach.

The "credit card float" is an unsustainable practice where you spend money on your credit card, wait to get paid, and then use that income to cover the credit card bill.

Additional reading: Can I Add More Money to My Secured Credit Card

YNAB helps you flip the script by forcing you to budget using only money you currently have in your checking account.

Paying off credit card debt as soon as possible is encouraged, and paying the card off once per week works well.

YNAB can also help you create a plan to get out of debt if you're "riding the float" and can't cover your credit card debt with your current cash on hand.

Consider reading: Does Paying Credit Cards Early Help

Recording your transactions is a crucial part of using YNAB with credit cards. You can do this manually by adding a spending transaction for each purchase in the credit card account screen.

YNAB automatically creates a category group called "Credit Card Payments" when you add a credit card to your budget. This category will be used to track your credit card balance.

To record a transaction, assign your purchases to the categories where you've budgeted for them. For example, if you purchased a record and some hardboiled eggs, you would assign the $23 record to your "Fun Money" category and the $1.03 eggs to your "Dining Out" category.

As you add new transactions to the credit card account, YNAB will automatically move the dollars in your budget to the "Credit Card Payments" category. This is reflected in the credit card account register.

Here's an example of how this works:

The $24.03 is no longer available in your "Fun Money" and "Dining Out" categories, but is now available in the "Acme Credit Card" category. This is where you'll find the funds ready to pay off your credit card balance.

Alternatively, you can link your bank or credit card to YNAB and have it automatically import transactions for you. This can save you time and effort, but make sure to review the transactions to ensure they're accurate.

For more insights, see: Available Credit vs Current Balance Discover Card

If you always pay your card in full, the available amount on your Credit Card Payment category will match the balance on the card, and you'll see a friendly message that your payment category is fully funded.

Related reading: Minimum Payment on Discover Credit Card

This is the ideal scenario, but let's face it, not everyone is in this situation.

If you don't have enough money in your payment category to cover the balance on your card, YNAB will alert you, and the available amount in your payment category will turn yellow.

You can create a Debt Payoff target right from this message to pay off the debt on the card over time.

If you have multiple debts, consider snowballing them, which means paying off the smallest balance first.

To record your credit card payments in YNAB, simply allocate dollars for your payment underneath the "Credit Card Payments" category.

This amount will display in green in the "Payment" column of your budget.

If you budget $50, it will look like this:

YNAB will calculate the total available payment amount based on your allocated dollars and the existing balance on your credit card.

For your interest: After Paying off Credit Cards Score Goes up

You can account for interest and fees on your credit card by creating a category in YNAB to hold these expenses. Allocate dollars to this category when you get paid to save up in advance.

If you don't know exactly how much interest will be charged, use a generous guesstimate. When interest hits your credit card balance, record it in your credit card account just like any other expense.

Interest is the fee your credit card company charges for extra time to pay off debt. Budget for interest payments by setting up an "Interest" category in YNAB.

If you're unsure about how much interest will be charged, budget a little more than you expect.

For another approach, see: Will a Prepaid Credit Card Build Credit

YNAB and credit cards can be a powerful combination for managing finances. Using YNAB (You Need a Budget) with credit cards can help you track expenses and stay on top of your budget.

YNAB can help you allocate a portion of your credit card balance to a specific category, such as groceries or entertainment, making it easier to see where your money is going. This can lead to more intentional spending and reduced overspending.

However, it's essential to consider the potential drawbacks of using YNAB with credit cards. YNAB's rules-based approach may not be suitable for everyone, especially those with complex financial situations or high-interest credit card debt.

On a similar theme: Do Credit Cards Help Your Credit Score

If you always pay your credit card in full, you'll see a friendly message that your payment category is fully funded, and the available amount will be green.

YNAB will keep track of your payments and alert you if you don't have enough money in your payment category to cover the balance on your card.

The available amount in your payment category will turn yellow, and you'll see a helpful message telling you how to fix it.

You can create a Debt Payoff target right from this message to pay off the debt on the card over time.

Curious to learn more? Check out: Does Debt Relief Close Credit Cards

YNAB is a game-changer when it comes to budgeting, and one of its biggest advantages is its seamless connection to your banks and credit cards. This means you can easily import your account info and transactions, and have them sync across all your devices, including tablets, Apple watches, phones, and even Alexa devices.

You can also share your subscription with up to five people, making it a great option for households. This way, everyone can stay on track and participate in the budgeting process.

The app comes with a range of handy visuals that make it easy to see where your money's going and how much room you have left in each spending category.