Getting Started with YNAB – Credit Card Debt

Since I’ve been using the software for years, I get asked questions about YNAB all the time.  I got asked a good question today that I thought might be useful for people just getting started with YNAB.  That question was “How do I handle credit card debt?”

If you have a balance on your credit card, and you want to pay it off over time, my recommendation is to take the card out of your wallet/purse, and put it somewhere safe in your house.  The idea is to not have it with you when you need to make a purchase, so you don’t use it anymore.  I’ve heard of people locking them up in a safe, or putting it in a bowl of water and freezing it (so you have to have time to think about the purchase while it is thawing out before you can even get the card).  Whatever works for you, just make sure you don’t have the card with you when you make purchases.

Now for the YNAB part.  Since you won’t be using the card, treat it like any other debt.  Put it as an Off Budget account, and create a category for Debt Reduction in your budget.  Pay your card out of what you budget into the Debt Reduction category, and just adjust your balance once a month (or once every few months if you prefer).  Then, when you get it all paid off, move the account to be On Budget, and start tracking your purchases again (once you thaw out your card, of course).

As far as how much to budget in the Debt Reduction category, that all depends.  What we do is make a minimum budget for our essentials, then put everything extra that comes in into that category.  Even extra bonuses and random forms of income that I budget for the existing month goes in there, and I just leave the balance until the beginning of the next month.  Once we do our new budget, I put the extra in the Debt Reduction category, and then make one payment for everything in there.  I repeat that process every month.  It’s been working out well for us since we’ve been doing it a few years ago.

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