So you’ve discovered that you’re riding a credit card float. Sure, it’s a bummer but it’s not all bad news. In fact, to point out the obvious: the only thing that has changed is your level of awareness of the situation, not the situation itself.
Before:
I pay my credit card(s) in full every month and never incur interest charges or fees. What could possibly go wrong?
After:
Ack! I’m borrowing against my next paycheck to pay for current expenses.
Awareness, my friends, is half the battle. The next step is to get off the credit card float.
The following tutorial details exactly how to set up your accounts and the steps to follow each month until you get off the float. This tutorial is for users of the new You Need A Budget (YNAB) web-based subscription software (sometimes referred to as nYNAB). [If you’re still using the old, no-longer-supported YNAB4, the FLTS concept can be applied but the setup is different.]
Let me know if you have questions. If this tutorial is helpful, a kind word in the comments would not go amiss.
Float Loan to Self [FLTS] Tutorial for nYNAB Users
Before we begin, a couple of notes:
First: I recommend beginning with a fresh, clean budget. That will be the quickest, easiest, and cleanest way to get started and move forward. However, if you are deeply invested in your existing data, you can introduce a FLTS without starting fresh but it requires extra steps and can prove to be messy. Skip to the end of this tutorial for instructions on how to integrate your existing data into the FLTS method.
Second: This tutorial focuses only on how to set up a FLTS, not how to use YNAB in general. I’ve classified this as an “Intermediate” level tutorial because it might be difficult to follow if you’re not already somewhat familiar with the YNAB software and the budgeting concepts behind it.
The YNAB developers have provided their own resources explaining the YNAB methodology and the software. The Float Loan to Self [FLTS] methodology, for both YNAB versions, is of my own devising; it’s a method I developed and use to better serve my clients.
Step 1: Create your accounts
If you’re starting your budget from scratch, apply the following steps to each account you own or co-own that will be part of your budgeting decisions (checking, savings, and credit cards).
1a. Create a new account
Start by creating a new unlinked account. You can always come back and connect them later if you want to import your transactions.
1b. Choose Account Type: Checking
Choose Checking as the Account Type. Yes, choose Checking even for your credit card(s). This setting will not keep you from linking your credit card to your bank later.
1c. Name the account
Choose a name that makes sense to you, i.e. Chase checking, Public Service CU #1010, Citibank Visa, Amex 0082.
1d. Skip the Starting Balance (Enter “0”)
The app requires you to enter a starting balance before you can complete the account creation process – so you can’t technically skip this step. But I do recommend that you enter “0” for now and circle back to starting balances later in Step 3.
*Whether you enter starting balances now or later, it’s vital that you enter accurate balances. This is not the time or place to guess or use rounded numbers.
1e. Repeat for each account
Repeat the account creation process (steps A – D) for each account you own or co-own.
Step 2: Create the Float Account
Create one last Checking account. Name this account CC FLTS.
Even if you have multiple PIF (paid in full) credit cards, you will only need one FLTS account.
Step 3: Enter your current account balances
Log into each bank and credit card account to retrieve your current account balances.
Edit each account’s Starting Balance transaction accordingly.
- Checking and savings account balances should be entered as an Inflow.
- Credit card balances should be entered as an Outflow.
Progress Check #1
Now your assets (checking) and liabilities (credit card outstanding balances) are both entered. Click on the Budget tab to view your adjusted To Be Budgeted [TBB] balance.
This number represents the actual cash you’d have available if you paid off your credit card balances today. Because you’re riding a float, this isn’t enough to cover all of your upcoming expenses.
If you’re still unclear on this whole “riding the float” thing, go back and read my article, Riding the Float. Then download and complete the float worksheet.
Step 4: Create your FLTS (Float Loan to Self)
This next step creates the money you need available in your To Be Budgeted balance in order to continue paying your credit card statement balances in full and avoid paying interest charges.
- If you have a single PIF credit card, this is simple… note the outstanding balance of your account.
- If you have multiple PIF credit cards, jot them down and add them up.
Enter the total of your outstanding credit card account balances as an Inflow in the Starting Balance transaction in your CC FLTS account (see screenshot 5, above).
Progress Check #2
Take a second to check your work again. Return to the Budget tab and check your To Be Budgeted balance again. It should equal the sum of your checking and savings accounts.
Step 5: Create a Debt Reduction category
Now it’s time to set up the system for getting yourself off the float. You need a way to plan your attack and visualize your progress.
Create a new budget category/envelope and name it appropriately — something like Debt Reduction, FLTS Payments, Getting off the Float, Back on Solid Ground, etc. I always recommend category titles that inspire or motivate.
Put this new expense category in whichever Category Group makes the most sense to you. But don’t hide it at the bottom of a big list of categories. Seeing it frequently will help remind you to make it a high budgeting priority.
Step 6: Budget to $0
Now you pick up and proceed with the normal flow of the budgeting process in YNAB.
The first step is to budget to $0. Give every TBB dollar a job. If possible, right from the start, allocate anything you can spare to your new Debt Reduction category.
Remember, you’re trying to get out of debt (get off the float). The only way to do that is to trim back on expenses. However, the key here is to avoid making promises to yourself you can’t keep. Don’t put yourself in a position of having to take money back out of your Debt Reduction category once you’ve budgeted to it. It’s better to under-promise and over-deliver than to have to backtrack on progress you thought you had made.
Remember, the way to eat an elephant is by taking one bite at a time. In Step 10, you’ll get the chance to add even more to your debt reduction and accelerate your progress.
Step 7: Business as Usual
At this point, it’s business as usual. Continue to charge your everyday expenses to your credit card and log your purchases/expenses in YNAB as they happen.
Important Point 1:
As is standard practice in YNAB, make sure to cover any and all overspending immediately by moving money from a discretionary category to cover the overspending.
Important Point 2:
It is important to continue to charge expenses to your credit card(s) because you still need to float yourself that loan. If you were stop using your credit card and begin paying with cash instead, you’d overdraft your checking account.
Step 8: Let the harvesting begin
This step can be done at the end of each pay period or at the end of each month — whatever makes the most sense to you and works best with your income and expense cycle. The important thing is to make sure the funds you’re harvesting will not be needed to supplement your next paycheck-and-expenses cycle. In other words, don’t get too far ahead of yourself or you’ll end up having to increase your debt load again.
First, make sure all of your accounts are reconciled. You need to make sure there aren’t any missing transactions that will affect your category balances.
After everything is reconciled, look for any discretionary categories that still have positive Available balances. Do you need that money to roll forward to next month? Or can you start that category again from scratch with your next paycheck?
If the money can be harvested and sent to debt reduction, click on the Available balance (green bubble) and use the popup tool to move some or all of the leftover funds to your Debt Reduction category.
Repeat these steps and harvest as many unused discretionary dollars as you can.
Progress Check #3
Run through the following checklist before moving on to the following step:
- Confirm that your TBB is still $0.
- Confirm that every category/envelope is either empty or has a positive Available balance.
- Confirm that your Debt Reduction category has a positive Available balance.
Step 9: Make a “loan” payment
This step is administrative only; no money is actually changing hands or being physically moved.
As in Step 8, this process can be completed at the end of each pay period or at the end of each month — whatever makes the most sense in your particular situation.
In your CC FLTS account register, create a new transaction. The Payee field can be left blank.
In the Category field, choose your Debt Reduction category.
I recommend noting in your memo field that you’re making a regular monthly whack at your FLTS or indicate which category balances you harvested to come up with this “payment.”
Finally, enter an amount in the Outflow field equal to the amount in your Debt Reduction envelope.
Progress Check #4
Time to check your work again. If you did everything correctly, the following should be true:
- Your Debt Reduction category envelope should now be empty (the bubble is gray); and
- Your CC FLTS account balance should be lower.
Don’t forget: at any point, you can click on the dollar value in the Activity column and view a list of the transaction(s) applied to your FLTS balance during a particular month.
Wrapping Up: Rinse and repeat until you’re off the float
And that’s it. Keep repeating Steps 6-9 until the balance of your CC FLTS account is $0. Once you hit zero, you’re officially off the float. Congratulations!
How long it takes you to get off the float will depend on the size of the float you are riding and the extent to which your cut your monthly expenses. I’ve had clients get off the float in less than a month. And others, with more complicated situations and different priorities, take more than a year to completely eliminate their float.
Integrating the FLTS method into an existing budget
As I mentioned at the beginning of this tutorial, it is possible to integrate my FLTS method into an existing YNAB budget without having to do a Fresh Start and give up all of your existing budget history.
However, be forewarned: one mis-step and things could get messy — fast.
- Follow the directions in Step 1 to create new Checking accounts for each of your PIF (paid in full) credit cards. These new accounts will replace any existing accounts you’ve already created for your credit cards. They must be converted to Checking accounts to circumvent the screwy programming YNAB has built into their credit card account type.
- Complete Step 4 – make a CC FLTS account.
- Complete Step 5 – create a Debt Reduction budget category.
- Working on one account at a time, complete the following steps for each credit card account:
- In the account register, select all transactions. Using the edit function, move every transaction from your old account to the corresponding new account.
- Once the old account is empty of all transactions, delete it.
- Fix account names — YNAB won’t allow two accounts with the same names so you likely had to give the new accounts temporary names.
- Confirm your work by checking your TTB balance and reconciling your credit card accounts.
- If everything went right, you should now be able to pick up at Step 6 and see your progress as you chip away at your FLTS.
Congratulations and good luck! Don’t forget to share your success story with me in the comments.
Hi Elizabeth, this sounds like a great idea! I’ve put in my 5 individual credit cards as checking accounts. Do I then not put in my individual monthly credit card payments in the categories? I also have 2 car loans. Does that count as part of the FLTS amount? These are automatic and I had previously had a category of automatic loan payments set up.
Thanks!
Hi Beth. Thanks for commenting.
Credit card payments are never categorized in YNAB. Credit card payments are transfers between accounts — usually from a checking account to a credit card. Your Budget and Budget Categories aren’t impacted at all (they were already impacted when you originally charged the purchases to your credit card).
Car loans are a completely different animal. In most circumstances the best way to process car loan payments is to treat them just like any other expense. Create a category for the monthly payment, budget each month, when you make the payment it’s an outlfow that empties the category. Rinse and repeat each month. Advanced YNABsters sometimes opt to track progress on their car loans by creating off-budget tracking accounts. I don’t recommend adding tracking accounts until you really know your way around YNAB.
Riding a credit card float is a very specific financial circumstance and the FLTS method applies ONLY to credit card float. You might want to check out my article about Riding the Float [https://eshmoneycoach.com/articles/riding-the-float/].
Holy cow, i’ve been a YNAB user and helping others get started for a couple years and I can’t believe I just now came across this article! This is absolutely hands down the best way I’ve seen to handle the float. YNAB’s suggestion to just stop paying in full and deal with the interest is…..lazy at best. Not a real solution. But this is fantastic!! Thank you for taking the time to write all this up, I will definitely be sharing this with people from now on.
Thank you Elizabeth for helping me set up the CC FLTS. I’m looking forward to getting off the float….
Would it still work for an existing YNAB user to just delete the CC accounts and set them up again starting with Step 1?
Hi RG, I’m not sure I completely understand the question. Feel free to clarify if I missed it and I’ll try again.
If you’re an existing user and your CC accounts have activity (transactions), you can’t delete the accounts. Doing that would throw everything out of whack and create a real mess. All of your payment transfers between accounts would break and leave orphan transactions. And your allocations would likely get all messed up as well.
If you want to integrate the FLTS method into an existing budget, I recommend following the steps I outlined at the end of the tutorial. It basically involves making a new checking account for each existing credit card, transferring your transaction history from the CC account to the new checking account, deleting the old CC account, and then moving forward with the rest of the FLTS steps.
I think I got it to work with my existing accounts…my only question now is how do I record it in YNAB when I make a payment to my CC? Do I need to make a category in my budget to allocate those funds to?
I think I have it working in my existing YNAB account. Last question…do I need to create a new category in which to capture my monthly CC payment?
Ok, I’ve figured out the question above, but I have one new one….when I switched my CC accounts to checking at the beginning of December, it caused a negative balance in Ready to Assign for November. Is that normal?
Actually, I’ve figured out my question below, but I just noticed that creating my CC FLTS account and converting my CCs to checking accounts in December has caused a negative Ready to Assign amount back in November. Is that normal?
Hi Elizabeth! I’ve just started using YNAB, came across this method on Reddit and am finding it a lot more useful than other recommended suggestions on how to get off the float, so thank you! As I’m getting started, though, it doesn’t look like I’m going to be able to pay my statement balance in full this first month at least (as I start cutting spending this month to chip away at the FLTS). Is there a step — maybe having to add to the FLTS amount? — to add in that scenario?