Managing New Debt

What if I have to charge something on my credit card and I can’t budget to pay it off?

This could happen to anyone, especially someone just starting with YNAB.  If you’ve only been budgeting for a few months, you may not have had time to build your rainy day funds sufficiently to deal with unexpected expenses.  Eventually Rule Two will help you avert this problem, but what do you do in the short term?

Let’s use the real life example of a big car repair.  The first two months with YNAB, you budget $100 each month toward car repairs. Things go fine with your car and you have $200 in your car repair category.


Meanwhile, the MasterCard has a total balance of $460, with $390 remaining on your PreYNAB Debt. You’ve budgeted $200 towards that old debt this month, meaning your goal is to get that PreYNAB Debt down to $190.


Then you’re hit with a $500 car repair and there’s no wiggle room in the budget.  You realize you will have to charge this on the credit card.   This means you are borrowing money from the credit card company, so you need to do a few things on the budget:

  • Show the borrowed money being spent to repair the car.
  • Show the  borrowed money coming into the budget so we can assign it to the car repair category.
  • Show that the debt is actually increasing, not decreasing.

First, record the transaction for repairing the car in the credit card account:


Because only $200 was in the car repair category, YNAB nows shows that we are overspent in car repairs:


So right now, the credit card payment formula won’t work.  

The account balance is $890 and the balance in Pre-YNAB debt is $190.

$890 - $190 = $700

But we know we can’t afford to send them $700 because we are overspent in car repairs.

The $200 that’s budgeted toward Pre-YNAB debt isn’t going to be making a dent in the debt at all.  Those dollars are actually being used to minimize how much I need to borrow from the credit card.  They’re helping to cover the car repair.  So first, reassign those dollars to the car repair category.


So in the end, you need to borrow $100 from the credit card.  You are increasing your debt by $100.  If you enter a positive number in the Pre-YNAB debt category, that lowers the debt. Conversely,  a negative number will increase the debt.

Enter -$100 in the Pre-YNAB debt category.


Now there is $100 available to budget.  That’s the money that was borrowed from the credit card company.  Now add that to the car repair category.


Remember at the beginning of the month the credit card account balance was $390.  Now $100 has been added to the debt, making it $490.

You can still make a payment and trust that the formula will work.

$890 - $490 = $400

Where did that $400 come from?  $200 was originally saved for car repairs and was waiting in that category balance, and $200 was reassigned from the Pre-YNAB debt category.

If you are in a situation where you have several credit cards that you are trying to pay off, we encourage you not to use those cards for spending if possible.  If you do, keep the spending isolated to one card to make things easier to manage.