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Managing Credit Cards

Using a credit card in any budgeting software can be confusing, and Actual is no different. Of all the questions that are asked about budgeting, credit card usage is near the top of the list so don't feel bad if you're a little confused.

On this page we will walk you through how to manage a credit card "within the budget" which is the strategy of using a credit card that we highly recommend that you follow. If you already have a preexisting credit card balance that you haven't budgeted for then we also have you covered, see the Carrying Debt page to find out how to track this debt in a safe and sustainable manner, and try to follow what we describe down below for any future credit card purchases.

Using a credit card within the budget means that for every purchase you make on the credit card, the transaction is added to Actual with a category for which money was already set aside. This means that as long as you do not overspend in any category you're not incurring any more debt and are able to pay the credit card bill in full whenever it arrives.

Scenario​

Below we're going to describe a scenario showing you how you can safely use a credit card without racking up any debt. There's a lot of text in the following sections but don't worry, actually implementing this strategy is very easy.

Setup​

To start with we're going to be creating two accounts, Checking and Credit Card, both with a starting balance of 0. We're also going to say that we're receiving 250 in income on the 1st of every month.

In this scenario we're going to say that we're planning on buying a new laptop for 500. Since we don't have any savings set aside for making this purchase at once we're instead going to create a category called New Laptop into which we will budget the money we're saving for this purchase.

Month 1​

It's the first day of the month and we've just received our salary into our checking account, and so we create a transaction depositing 250 into the Income category.

Since we don't have any other expenses this month we know that we're able to put aside the full 250 that we have available to budget this month into the New Laptop category. Since the category balance is so far only 250 we know that we don't yet have enough money set aside to buy the laptop for 500, and so the purchase will have to wait until another month.

At the end of the month our budget looks like this:

  • New Laptop category has a balance of 250.
  • Checking account has a balance of 250.
  • Credit Card account has a balance of 0.

Month 2​

The first of the second month rolls around and we've just received our salary again, and just as last month we create a deposit of 250 into the Income category.

Our expenses are unchanged and we yet again budget 250 into the New Laptop category. This means that we finally have a balance of 500 in the New Laptop category and are now able to make the purchase we were looking forward to. So we buy the laptop using our credit card and put the transaction in the New Laptop category, since that's the category holding the money we set aside for this very purchase.

Our budget now looks like this:

  • New Laptop category has a balance of 0 since we just used the whole balance for the purchase.
  • Checking account has a balance of 500.
  • Credit Card account has a balance of -500.

Later that month when we receive the credit card bill for 500 and since we know that we didn't overspend in any category we know that we have the money for paying the bill in full already set aside and so we can pay the bill in full with no worries.

When we've paid the bill we account for this in Actual by creating a transfer from our Checking account to the Credit Card account for 500, meaning that our budget now looks like this:

  • New Laptop category has a balance of 0.
  • Checking account has a balance of 0.
  • Credit Card account has a balance of 0.

Since we made sure to only spend money that we already had budgeted we were able to use the credit card to make a large purchase without any worries of incurring more debt!

Conclusion​

Hopefully after reading this example scenario you've seen that managing credit card spending safely can be pretty easy with a little bit of planning.

On the other hand if some emergency comes up where you need to "borrow" some of the money you had set aside for paying the credit card bill then you've overspent your money and are now in debt. This is perfectly okay, but it means that you need to switch over to following the Carrying Debt strategy for managing this debt. Following this scenario you'd substitute the New Laptop category for the Credit Card category.