Credit cards and debt

Concepts

A credit card is an account you owe money on. When you pay with it, Balanced sets the budgeted money aside, so it's there when the bill comes.

With a credit card, buying something and paying for it happen at different times. You buy groceries today, and the money leaves your checking account weeks later. Balanced keeps both moments straight, and your budget stays honest in between.

A card is a liabilities account

Create one Liabilities account for each credit card. Its balance is what you owe, shown as a negative amount. Every purchase pushes it further below zero; every payment brings it back up.

Buying with the card

You pay €60 for groceries with your card. Nothing leaves Checking yet, but the card’s balance drops:

Supermarket, paid by card

Expenses:Groceries: +60.00
Liabilities:Credit Card: −60.00
Balanced: 0.00 ✓

You’ve spent the money, even if you pay later. So Balanced takes the Groceries budget that covers this purchase and moves it to the card: it’s now set aside to pay the card. In the budget editor, the card shows that amount in the Liabilities section, above your categories. When the bill comes, the money to pay it is ready.

When the budget doesn’t cover it

Say you assigned €100 to Groceries this month. The €60 purchase is covered: €60 moves to the card, and Groceries has €40 left. A few days later, you buy groceries for €70 more with the card. Only €40 is left, so €40 moves to the card, and €30 isn’t covered:

Groceries is Overspent by €30 this month.
€100 is set aside for the card. The other €30 is card debt with no money set aside for it.
Next month, Groceries starts again at 0, like any overspent category.

A purchase can only use what’s still left in the category at that moment. Whatever you spent from it earlier in the month, by card or from Checking, comes first.

Unlike overspending from your checking account or wallet, this doesn’t reduce next month’s To assign. The money hasn’t left your accounts yet; it’s still owed on the card. To pay it off, assign money to the card (see below).

Paying the card

You pay €100 from Checking to the card:

Card payment

Liabilities:Credit Card: +100.00
Assets:Checking: −100.00
Balanced: 0.00 ✓

This is a transfer: money moves between your own accounts, and the spending already happened at the supermarket. The payment uses up the money set aside for the card. It doesn’t count as Spent again. The monthly summaries in transaction lists show it as Liability repayment. The Cash Flow chart shows how much your debts changed overall.

If you pay more than was set aside, the difference counts as overspent, just like spending from Checking that you hadn’t budgeted: next month starts with that much less to assign. It’s taken only once, and the card starts the new month at 0.

Try it: with €100 assigned to Groceries, buy groceries for €60 and then for €70 with the card. Then pay €100 to the card.

Try it · Pay with a credit card

Groceries budget left: 100.00
Set aside for the card: 0.00
Card balance: 0.00
Checking: 1,000.00
Not covered: debt with nothing set aside: 0.00

Paying off older debt

Maybe your card already had a balance when you started with Balanced, or some spending wasn’t covered. Nothing is set aside for that debt yet. To pay it down, assign money to the card in the budget editor’s Liabilities section, just as you would for a category. Then pay that amount to the card. The payment uses the money you assigned, and your budget stays balanced.

Loans

A loan is a Liabilities account too. When the money is paid into your checking account, it counts towards Available, so you can budget it:

Car loan paid out

Assets:Checking: +5,000.00
Liabilities:Car loan: −5,000.00
Balanced: 0.00 ✓

Each monthly installment from Checking is a liability repayment, like a card payment. Assign the installment to the loan in the budget editor, so the money is set aside before it’s due. If part of the installment is interest, that part is ordinary spending from a category. The step-by-step setup is in Loans and debt.

Under the hood · for the curious

When you pay by card, Balanced splits the purchase into a covered and an uncovered part:

covered =
  min(purchase,
      left in the category
      right before it)
not covered =
  purchase − covered
set aside for the card
  += covered

Balanced takes the month’s purchases in order of date and time. What’s left in the category is what it carried over and was assigned, minus everything spent from it earlier in the month.

In the books, the second purchase is just two postings:

Supermarket, paid by card

Expenses:Groceries: +70.00
Liabilities:Credit Card: −70.00
Balanced: 0.00 ✓

The part that’s not covered stays on the card as debt with nothing set aside. The category always loses the full purchase. At the start of the next month, the uncovered part is added back before overspending is taken from To assign, so only overspending that wasn’t paid by card reduces it.

A refund to the card gives the money back to the category. It first cancels the card’s uncovered spending in that category this month; only the rest lowers what’s set aside.

A payment from Checking to the card lowers what’s set aside by the amount paid. If that goes below zero, the shortfall is taken from next month’s To assign once, and the card starts that month at 0.

Step by step in the app: Credit cards.