Are You On the Credit Card Float? Credit Card Alerts Can Help
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- เผยแพร่เมื่อ 1 มิ.ย. 2024
- The credit card float, as it has been termed, is the situation in which a person is reliant on the month-long grace period of the credit card to meet their obligations. In other words, they spend money now with a credit card, which they pay off later when their paycheck comes in. A person in this situation may pay off their card in full each month and never pay interest! But the fact remains that, if they are on the float, they are in debt -- they do not have the cash to handle their current expenses.
What's insidious about the credit card float is that it can happen slowly. As life changes and spending changes along with it, credit card expenses can slowly start to overwhelm the amount of cash you have coming in. Fortunately, YNAB has features to help you manage that!
Ben and Ernie walk through the new credit card alert feature in YNAB, which alerts you when overspending in a category causes you to not have enough cash to cover your credit card balance. Or, if you add a credit card to YNAB with an existing balance, it will alert you to assign dollars to cover that existing balance before handling other expenses.
Heard It from Hannah on the Credit Card Float: • What’s the Credit Card...
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Timestamps:
0:00 What is the Float?
16:07 How Do You Know You're On the Float?
19:27 New YNAB Feature - No More CC Float Workarounds!
25:20 How to Get Off the Float - Method 1 Rip Off the Band-aid
28:08 Method 2: Restriction Mode
32:50 Method 3: Use Your Savings
36:29 YNAB Wins
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Never paid a cent of interest, but I realized we were on the float several years ago. We had savings so like Ben suggested, we paid off all our cards from our savings account and started over. I’m slowly cancelling cards one by one. The more I listen to Jesse talk about predatory credit card companies, the more I want to be like Ben! But same as Ernie, I’m married so it’s not just my decision to make.
I’m in the habit of building up the cash first, before using the credit card for an expense.
Fyi: "credit float" as a concept has been around since at least the 1960s (I found a reference from Harvard Business Review in 1966). It has been commonly used in reference to business and government spending.
Very interesting. Thanks for digging in! ~Ernie
25:16 “1st method: stop paying off the credit card in full”
Just to be clear to those watching this video, you would still (of course) be paying off *at* *least* *the* *minimum* repayment amount on your statement every month (if not more, up to your ‘cash flow’ capacity) as you work out a strategy to save more money to put toward a holding amount (in the YNAB cc payment category/ies). In time - it this value/s held will fully negate the negative balance/s owned on all of your credit cards, at all times.
I couldn’t rip the bandaid off but, I sure did some fancy footwork - scrimping and saving where I could - to get of that cc float. I think it took me 4 months to achieve and I’m not looking back. Thank you YNAB!
MIND BLOWING! I thought I was doing well with not paying any cc interest but I've been ON THE FLOAT! Thank you for snapping me out of it.
I'm in the middle of the transition off the float now. I'm doing a combination of reducing spending, reducing the amount I'm paying to the credit card every month, and re-evaluating and honoring my true expenses to prevent additional excess credit card use. Spending definitely has to decrease either way. Admittedly I have been hacking the system by making larger purchases with money I actually have on the credit card and then paying it off immediately to get rid of the statement balance and prevent paying interest.
Don't forget the power of increasing your income to help get off the credit card float
I am a CC user for the convenience of swipe and go. I do keep several hundred in the wallet for times when CC won't work. That said, I never wait till the end of the month to pay it off. All my purchases are covered by funded categories and I make payments multiple times during the month, once the purchase has cleared and never carry the balance into the next month. But, that was not always the case. YNAB helped me get all the CCs paid off and I'll never carry a balance again. I don't remember which of the YNAB crew said this, "carrying a balance on your CCs is like swimming with an anchor around your neck."
Great, now I want to overspend just to see the alert 😂
I learned about credit card float back in the early 70’s. It’s a banking term. The term refers to the period from the date of purchase to the date the payment is due.
Great feature. I'm personally a big fan of credit cards, all of my spending that can go on a credit card does. I totally agree with the float being the key thing to watch out for. Paying your balance in full every time is definitely key. I love the tips in this episode around identifying being in the float or not. Great stuff as always!
I’m working so hard to get out of this raft!!! My cards were paid off and then life blew up in my face… not wasteful spending!!! Now, I refuse to stay here. I’m getting my car paid off by the end of December, it has the largest minimum payment, and then all of my focus is on my credit cards. My goal is to be done by next August. I cannot wait to get them paid off again. Then I’m focusing on savings, savings, savings!!!!
I assign my money for the category I'm spending in. So for example $200 for groceries. Then I make the purchase on the credit card. The money that was allocated for that is used to pay off the card before the due date. I'm not sure that counts as the credit card float. All I know is that I'm no longer overspending after learning how to budget over 2 years ago.
You're on the credit card float if you pay off credit card and then don't have money to live on, thus needing to use the credit card again. It doesn't sound like that is your situation
Credit card float game finally caught us with the August 2019 statements due September 2019 when for the first time we'd not be able to cover all the cards in full and would be paying interest. This started us down our budget journey, because, fool me once shame on you, but fool me twice, shame on me!
This was REALLY helpful for me. At first, I thought I was on the float based off what you guys were saying. But as you kept describing it, I realized I just use my CC as cash. I'm 2 months ahead and all the cash is available immediately, and I just apply it to pay off the card rather than upfront. Glad to know I'm not on the float.
YNAB helped me realize I was on the float back in February. I ripped off the bandaid during a 3 paycheck + birthday month to jumpstart the cash flow. Now I'm off the float and using the debt avalanche method to pay off credit debt as I work towards getting a month ahead.
Float is a term in the insurance industry. "In technical terms, float is the money held by insurance companies that has not yet been paid out to claimants. In other words, it's money that belongs to the policyholder that isn't in their hands yet."
I think credit card float comes from check float, back in the olden days when you'd write a check but it'd be several days before the funds were actually withdrawn. People would often write a check without the money in the account because they knew they had a couple days before it would hit.
I’m surprised a 0% interest card wasn’t mentioned as part of the fast method! You can naturally move your float to the new card by putting new purchases on it, and then only pay the minimum on that card until you’re off the float, then pay down that balance as debt. Since it’s a zero percent offer, no interest
That's definitely an option-I just hate recommending opening a new card! It becomes one more thing that needs to be managed moving forward. ~Ernie
I've been using CC since 1979 at the time I went into the military at 18. I found out about the float a year later. It's a time frame between the time a purchase is made on the card and the time that charge starts accruing interest. A rather tricky thing to accomplish and keep track of but can be done. I stopped worrying about floats in my mid 30's. About the time I got control of CC spending and paying off the balance when the statement came. Now that I use YNAB for less than a year, it can help with some time get control of that. Wish it was around when I was in my 20's.
I had to unfortunately get back into a float. Should be able to pay it off in 3 months. Though one card did offer 0% interest for a year to transfer. So that saves me even more.
Havent paid interest in years. I have it set to autopay for the statement balance and not a cent more, so I can keep the remainder in a high yield savings until the next autopay is due.
After 5 years we are almost "off the float"! We do use our CCs for points/cash back and 2 of the 3 have been PIF for the last 8 months. The 3rd we rarely use and is down to almost paid off. This month or December! And we should be a full month ahead by June. All of this with purchasing a house last year, unexpected expenses (in the $15k range) and 2 small loans that just putter along. Huge light at the end of this tunnel. \o/
I'm sort of on the float. I pay my bills with my next paycheck which I'm trying to change. But I do have six months of emergency savings in cash. And never paid any interest.
That being said, I'm getting to the point where I find myself almost agreeing with Dave ramsey on credit cards. They aren't my friend.
I’m confused. I dont pay interest. I enter expenses in YNAB exactly as if it were cash being spent. I’m working towards being 1 month ahead but I’m not there yet.
I only use credit cards for the bonuses. I have the Amazon card, a gas station card, and Bilt for rent and eating out. Its all just for the cash back. I budget the money I pay with the cards like its cash and pay them down to $1 twice a month.
Overall, I have to say that I am very confused as to this new feature. I understand what it does, I just thought it was already part of YNAB as if you used the cc before you received the money for the purchase, the category that you assigned the purchase to shows as overspent. I guess I see that it now also adds that to the cc category, but that is just redundant (with the exception perhaps of alerting you to set up a debt repayment plan).
The alert is exceptionally helpful for new YNABers. It reminds them to assign the pre-YNAB balance on their card to the Credit Card Payment category. ~Ernie
Use my ‘float’ as a positive. I have a cash back rewards card and I put the cash I ‘spent’ in a 6% instant access saver account to pay card in full when it’s time. I feel I’m making the money work harder for me that way. Not sure that is the float as you mean it as I do have the cash on hand.
If you have the cash on hand when you make the purchases, that's not what we mean about riding the credit card float. Good question! ~BenB
Thanks guys, this explains a few things. One thing I miss from YNAB 4 that I don't know how to setup in new YNAB is the credit card payment schedule. In 4 I had a category with a payment date. Now I have to remember that my CC statement comes out on the 20th of the month and is due by the 10th of next month. I know I'm not on the float as I'm allocating all of this month's $$ to next month so all good there. I just wish I could have my CC "bill" setup like all my other bills so it comes up in the ledger automatically on the 20th of each month. Can you point me to one of the educational resources that might cover this? Thank you.
Here's what I do. First, I set up automatic email notifications for my CC statements. Next, I set up a scheduled, recurring transaction for my CC payment (on the date it's always due). Once I get the email from my CC company about my new statement balance, I edit my upcoming scheduled transaction with that amount. And if you're looking for ways to remember your statement date and your due date, you can add that information to the notes section of either the Credit Card Payment category or the CC account. You could also edit the name of your CC to include that information and then it would show in the name of the Credit Card Payment category. Hope that helps! ~Ernie
Depending on how big the float is I'd rather use emergency spending and rebuild from there. No reason to pay interest and add costs to your life in order to fix this.
Negative NaNCIES 😂!!!!! I have NOT paid a cent in interest on any credit card in 4 years !!!!! BUT I definitely do the credit card float 😮ughhhhhh glenda in AZ
So I put all bills and groceries on a credit card to reduce the exposure of my debt card number/bank account. In 1 year I had my bank account hacked/stolen 3 times.
I fund each of the bills and the groceries category fully so it goes to pay the credit card bill. Is this credit card float?
No, since you fund the categories with real money beforehand you're not on the float.
How can I work towards getting off the float? Any advice?
The goal to getting off the float is to have more cash. You can achieve that by cutting as much discretionary spending as possible for a period of time. As NettieFIRE mentioned below, you are scrimping and saving as much as you can until you have enough cash to pay the card in full AND cover your necessities before the next paycheck. You could also get off the float by not paying your card in full for a bit (while still paying at least the minimum) and using that cash to fund your current necessities until you have enough to both pay the card in full again and cover necessities. Hope that helps! ~Ernie
Ben sitting there glad he’s never used credit cards.
So the credit card float is essentially being a month behind. Getting off of the cc float makes you current, and then you work on being a month ahead?
I've never thought of it in that exact way, but I think you're absolutely right! Nicely formulated! ~Ernie
Don't think this came up, but if you do auto pay, credit card companies don't give you the option to pay the full balance, just statement balance or minimum payment. Any tips on an optimal time to pay while using the target date method?
Using the target date method to pay off credit card debt? Since that type of debt calculates interest daily, I would lean to paying sooner rather than later. ~Ernie
My workaround is to use my bank's bill pay feature - after the statement date, they send a payment for my target amount (that goes toward debt) plus a (rounded) amount to cover the interest. Bonus is that it is always more than the minimum payment so, if I have cash flow problems, at least I won't get hit with a late fee. Then, just before the due date, I go to the CC site and enter a payment for current charges. Thinking about doing that a few times during the month, just for a dopamine hit!
I thought Jesse made it up
It is not just an alert. It also gets involved in the underfunded calculation which *I very much do not want*. I have times when I am temporarily underfunded on a credit card (for example, when my wife has spent some money and I have not yet discussed with her which category that spending should come from) and I use targets (and the underfunded Auto-Assign function) extensively. This interferes with that.
I think you missed the boat badly on credit cards and credit card float or I'm totally misunderstanding what you are saying. Did you listen to all the soundbites?
Example: "Every time you swipe that card you are promising future income."
Wrong. I'm promising 100+ day old money that is currently sitting in my savings account gaining 4.x%.
I buy almost everything with a credit card. I get fraud protection, extended warranties, the ability to dispute a transaction, card loss protection, isolation from my bank accounts, cash back, discounts on all sorts of products and I carry no cash in my wallet. I pay my statement balance each month from money I budgeted in the categories I spent and I do not pay interest.
No float and I use my card a lot.
I think you added to the confusion about what credit card float is and I think you missed the opportunity to help people manage their card properly, not run from it.
First!
So say something useful, inducing, motivational and or inspiring?
@@Oneofakind123 Hopefully, I did in the video 😉
I disagree with this concept. I spend out of my budgeted categories and so real cash is available to pay the card anytime I want. I pay each card every month at least the statement balance. If I have spent more on that card I pay down to < 5% of the credit line and carry that "new spending" over to the next cycle. I could pay the whole balance and would have plenty of money left, but I CHOOSE to pay this way. As a result of doing this, I have watched my credit score go up over 100 points. Credit is a tool, just like anything else. If you use it responsibly, it can be beneficial. BTW, I booked over 2K in cash back rewards last year. Also, I am a month ahead in my budget.
This is actually how YNAB encourages you to handle credit cards. This is not what they're referring to in the video.
You guys making it sound like using credit cards is bad. In my case I use it for subscriptions from companies outside of my country. Also sometimes in a different currency. Without a credit card I'm unable to apply for those subscriptions.
Credit cards aren't bed as long as you're only using them for their benefits and paying them off in full every month. If you're relying on them to get through the month, that's very different.
I use multiple credit cards on a very regular basis-I'm fan. I just want to be as stable as possible with my cash flow so I prioritize staying off the float! ~Ernie
Watch 6:56-7:22 where they explain the credit card float, the subject of the video (not the use of credit cards in general). The float is bad because, if your card account is closed, your limit is reduced, you lose your job, or an expensive emergency comes up, then you're in trouble!
I understand the subject regarding credit card float. But later in the video, it starts to sound like it's not a good idea to use credit cards. Also because of interests, which can be zero if you use it correctly.
In my country, you have to pay off your entire credit card balance every month, unless you have an older card with different rules.
I always make sure I don't overspend on my credit card, and the app automatically moves money to the card when I use it.
@@AlexWijn I see. Well, it seems like they're talking to people who start using a credit card with those types of positive intentions and then end up in a bind. That's great that you have good control of your credit card usage! Can I ask what country you're in? It's interesting that cards must be paid in full. I wonder how the companies make money.