How Do I Handle Credit Card Payments in YNAB?

Introduction

Using credit cards in YNAB is the most common source of frustration from everyone I talk to about using YNAB. Unlike traditional budgeting tools, YNAB treats credit cards differently to help you stay debt-free. This guide will break down how credit card payments work in YNAB and how to manage them effectively.

Quick Answer (TL;DR)

To handle credit card payments in YNAB:

1. Set up your credit card as an account (YNAB automatically creates a payment category).
2. Categorize credit card purchases as regular expenses (not as payments).
3. Ensure your credit card payment category is funded before making a payment.
4. Make payments from your checking account, reducing both your bank balance and credit card debt.
5. Reconcile regularly to keep everything accurate.

Step-by-Step Guide

‍Step 1: Add Your Credit Card Account in YNAB

• Go to Add Account and select Credit Card.
• Enter the current balance (as a positive number if you owe money).
• YNAB will create a corresponding payment category.

Step 2: Categorize Credit Card Purchases Correctly

‍When you make a purchase with your credit card:

• Assign it to the appropriate budget category (e.g., Groceries, Dining Out).
• YNAB automatically moves money from that category to the credit card payment category.

Step 3: Check Your Credit Card Payment Category

‍Before making a payment, verify that your Credit Card Payment category has enough funds. If not, move money into it from other categories to cover the payment. Always cover overspent categories with money from another category.

‍Step 4: Record Your Credit Card Payment

• When you pay your credit card bill, enter the transaction in YNAB.
• Categorize it as a Transfer to Credit Card.
• Your checking account balance will decrease, and your credit card balance will update.

Step 5: Reconcile Your Accounts

‍To ensure everything matches your actual bank and credit card statements:

• Regularly reconcile your accounts. This is especially important if your balances in YNAB don't match the balances at your bank.
• Fix any discrepancies by reviewing transactions.

Personal Insight

The way YNAB handles credit cards is what converted me to the method and the software many years ago. That said, it wasn't easy at first. When I first used YNAB, I struggled to understand why credit card transactions didn’t directly reduce my balance. I worried that I'd be paying for things twice...once when I made the purchase, and once again when I paid off my balance. Once I grasped YNAB’s method—treating payments separately—it all clicked. Now, I always check my credit card payment category before making a payment to ensure I stay on track.

Next Steps

If you’re still confused about handling credit cards in YNAB, don’t worry—it takes practice! If you want personalized help, I offer YNAB coaching to simplify your budgeting. Schedule a free call here.