Using your credit card like a normal person.

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So, I just can't figure out how I'm supposed to do this.

I have a checking account. I have a credit card account. The credit card shows my current balance, i.e. how much I'm in debt. My checking account show how much moolah I have sitting around. Great.

I have a Groceries envelope. I have a credit card envelope. The credit card envelope is a negative balance, matching the balance of my credit card account, so the overall amounts match, as I've been told to do.

Now, I buy $100 worth of groceries, but I pay with my credit card, because reasons. So, I make the transaction from the Groceries envelope, and the credit card account. This changes the balance on the credit card account to reflect what I just spent.

But uh-oh. Now the balance in my credit card envelope is wrong. It needs to reflect the amount on my credit card account. So how do I get it to do that? I could transfer $100 from that envelope to Unallocated, but that doesn't work, because then Unallocated will claim that I have $100 that I don't actually have. I could transfer $100 from the credit card envelope to the groceries envelope. But that doesn't work, because then it looks like I still have that $100 to spend on groceries.

So, how? In fact, WHY is this so hard? Why can't credit card accounts just not reflect on my "current moolah" balance? Why am I not allowed to know what's in my checking account, just because I have credit card debt?
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Pierce Hillebrandt

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Posted 3 years ago

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Karisa Russell, Official Rep

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Hi Pierce,

Sorry for the confusion! Can I ask, do you pay the credit card off in full every month? If so, you don't need to track the Credit Card Envelope. Instead, you'll just track the balance of the Credit Card with the Account. That way, as you make purchases on your CC throughout the month, those expenses will be reflected in the Envelopes that you add the transactions to. 

If you're not paying off the balance in full every month, I'd recommend not tracking the CC Account and only tracking the CC Envelope. The budgeted amount of the Envelope will be the amount you pay monthly on the credit card. In this case, when you make a purchase on the credit card, you won't add those to Goodbudget. 

Hope this all makes sense! 
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Pierce Hillebrandt

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That's not a very good way to do that at all. When are you going to fix this?

If I have a CC envelope (which would be WELL in the red), and not a CC account to match it, that would put my overall balance in the red. Which it isn't. Because the overall balance is supposed to reflect what's between my hands in crispy green bills.

Surely the obvious thing to do is to either not deduct credit card accounts from the balance, or have them automatically linked to their corresponding envelopes?

---

I have a credit card account with a balance on it, because I've spent money on it. A lot, way more than I can pay off in one month. That's my business, don't judge.
Because of this debt, your app deducts that from the overall balance, showing that (to use some fictional numbers) I don't have $2800 in unallocated, but instead I have $-4000, because I've spent $1200 on my credit card.

I asked you way back how to fix this, and was instructed to make a CC envelope with the same negative balance as the CC account, to cancel it out and show in Unallocated what I actually had as unallocated money. And so I did.

Now, I have a Groceries envelope. It has $300 in it. But then I buy a big box of potatoes with my CC, so I make a Transaction that is $50 from the Groceries envelope, and the CC account. That shows that I have spent $50 from my Groceries envelope, and $50 from my CC account. So far, so good. BUT!!!!!!! Now my CC envelope does not match the CC account. I need to also remove $50 from that. But, how do I do that?
- If I make another Transaction, this time from the CC envelope, then I will have $50 too much less (!) in on of the accounts. I didn't spend the $50 twice, after all.
- If I make an Envelope Transfer from the CC envelope, then - to where? The money is spent, I can't put it into Unallocated, then THAT would show the wrong amount.
- I could make the initial Transaction from the CC envelope, and the CC account, and then they would match.. But then the budget doesn't show that I spent $50 from my Groceries envelope.

Just make the app stop equating "money I owe" with "money I don't have", because those are not inherently the same.
(Edited)
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Doug de los Angeles

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I love everything about this app but what you have explained above. I'm so frustrated with tracking my credit card so that I can slowly pay it down. Also what is frustrating is that as I'm paying down my credit card I also us it to pay my monthly bills for points, miles, cash back, etc. The reason I have some credit card debt is because of some unforeseen bills that came due to my wife starting school. Since this has happened I now want to live on a budget so I can see where our money goes every month. Anyways why I say all this is because of the pain in the butt to track the CC debt in this app is frustrating. Negative envelope doesn't change when I make a transaction to purchase gas but need it adds to the debt part no problem. when I go to move stuff around it just gets all messed up to the point I just start over. Now I have just deleted my CC debt because it makes my allocated money negative. Make this app easier to track debt to help pay it down while budgeting.
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Karisa Russell, Official Rep

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Hi Pierce, 

Sorry my initial response wasn't very clear! What I meant was if you're making a monthly payment on the card, I recommend tracking just a Monthly Envelope for the CC's monthly payment, and not an Envelope to hold the balance. With this option, you'll want to remove the Account from your register, as well, so that you can more easily track what you have available in your Cash Accounts. This means you will not be able to track your card's balance somewhere. 

Right now, Goodbudget helps you budget with the funds you'd have available if you were to pay off your cards in full. Goodbudget does not have a good system that allows you to track your credit card balance, and still use the card, and not have that debt balance affect what you have available to spend. To answer your question, we are in the process of figuring out a better system for tracking debts. We don't have anything definitive at this point, but we are more aware of how folks think about debt and credit cards with the hope of coming up with a system that allows you to track available money more easily. 

I do apologize if I or someone else instructed you to use Debt Envelopes. I generally don't recommend this method of tracking debt for folks who are actively using those cards because this is a tricky way to track things. Hence why I prefer to recommend the option in my initial paragraph. Hope that makes sense. 

For now, what sounds like is happening is that when you make a purchase with your CC, you're adding the transaction to your Groceries Envelope, for example. However, because it's imperative that the Annual Debt Payoff Envelope and the corresponding Account balance always match, you have to add transactions made on that credit card to the Annual Debt Balance Envelope instead of your Groceries Envelope. That way, those balances increase together at the same rate. Know that this means that reporting won't be as effective, and your Monthly Envelopes won't reflect your spending. 

Then, when you make the monthly payment of the CC, you'll reflect that in two steps. First, make an Envelope Transfer from the Monthly Payment Envelope to the Annual Debt Balance Envelope. Then, you'll make an Account Transfer from your Checking Account to the CC Account. 

Again, I really recommend going along with the option of just tracking the card's monthly payment. You can read more about that method in Option 1 here: http://help.goodbudget.com/customer/en/portal/articles/1114030-starting-with-debt

I hope all of this makes sense
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Charlie Gee

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I'm looking for an alternative to a program that I currently use which shall remain nameless. That program attracted me because of the way it handles credit card usage. Every time I use the credit card for a purchase, say groceries, the amount is taken from my Groceries envelope and automatically added to my credit card payments envelope. When my credit card bill arrives, the payment I make is then taken from the credit card payments envelope. I never have to worry about the credit card bill as the money is always there to pay it and my envelopes always show the correct balance. If goodbudget could do this I would switch because your prices are better.
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stephmize

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Hi Charlie - I found this post for the exact reason you described here.  Read the rest of the thread and don't feel like I understand yet how to reconcile the difference in CC logic here.  Any chance you figured it out and could share?
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Colin Grant

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It does do this? Set up your CC and then when you buy something with the card you pass the entry across the card account and the related envelope (it is exactly the same process as buying stuff using your bank account except you are using the CC account). Then, at due date, you make a transfer from cash account to CC account (no envelopes involved) to cover the amount outstanding. Hope that makes sense :-)
(Edited)
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Karisa Russell, Official Rep

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Hi Colin and Charlie, 

Thanks for the suggestion! It does sound similar to what Goodbudget does, but not quite the same. Charlie, it sounds like the program you're using (which is remain nameless) automatically creates an Envelope that on an on-going basis stashes money aside for you to pay your CC bill with each month. Is that right? That definitely sounds cool and very helpful!

Right now, Goodbudget can help you track the balance of your CC. But, if you don't the card off in full every month, the balance won't necessarily be the amount you want to pay that month. 

For now, I've added your thoughts to our tracker for future consideration. 

Thank you both!
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John Vander Stel

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I do this currently with GoodBudget by creating a "Credit Card" envelope.

Every time I charge something to my card I simply transfer the amount from the appropriate payment envelope to the credit card envelope. Each month when the credit card bill actually comes in, I just pay it in full out of my credit card envelope. It works well, but the big drawback is that it messes up the reports because transfers between envelopes do not show as payments from the envelope that the money originally came from.

If envelope to envelope transfers that were done to reflect credit card charges were actually treated differently by GoodBudget, this approach would work very well.

My own home-baked program from long ago treated all envelope-to-envelope transfers specifically from or to a credit card envelope differently to actually reflect this distinction, so it wouldn't mess up reports.

This approach works great for me with GoodBudgets simply because I don't use the reports, anyway. :-)

Just my two cents, for what its worth...
(Edited)
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Charlie Gee

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Good response, thank's John & Colin. The other program treats CC transactions in a special way that achieves what you suggest but resolves the issues you mention. I might give GoodBudget a try anyway as the price is more reasonable and I like the fact that there is no bank connections which  in the other program are mandatory and of necessity always lag behind.
(Edited)
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John Vander Stel

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I'm glad our comments were useful to you, Charlie. Your acknowledgment just brightened my day. :-)

You'll like GoodBudget and the helpful people in this community. There will be a learning curve, but it will be well worth the effort.

Cheers!
(Edited)
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Michael

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This has all gotten me quite confused and reading the above hasn't really helped. I have several credit cards that I use and pay off each month or sometimes immediately. I use them to pay for nearly all of the expenses I have budgeted for in my envelopes. Does what you are saying mean that when I fill the envelopes at the beginning of the month that I should fill them from the credit card so that when I make the payment from my checking account that I am not paying for something twice (once when funds are allocated to an envelope and a second time when the credit card is paid off?). I use the cards so I can get the benefits of earning points etc. 
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Karisa Russell, Official Rep

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Hi Michael, 

Sorry for the confusion! To start, in Goodbudget, you can't fill your Envelopes from a specific Account. Rather, you fill your Envelopes from the sum of what you have available in all of your Accounts. 

In your case, since it sounds like you pay off your cards in full every month, you'll only need to reflect your CC's monthly payment by making an Account Transfer from your Checking Account to your Credit Card Account. When you do that, you won't be paying for things twice. 

Hope this helps! 
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Charlie Gee

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So if I understand this correctly the balance of all your envelopes and the balance of all your bank accounts will be in sync only when the balance on all your credit cards is zero? i.e. that the balance of all your envelopes will show less than the bank balance at most times and the difference is there to pay the outstanding credit card balance.
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John Vander Stel

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If you always pay your credit card account balances in full, then it's easy for GoodBudget to calculate what your card's account balance is now and what it will be at the end of its billing cycle. When one actually transfers the billed amount from one's checking account to one's credit card account to actually make the payment, the money will then actually leave the checking account ... always keeping everything in sync.

However, if you don't always pay each credit card account off in full each month and keep making additional charges on that card, then you will be charged interest on the newest charges on that particular card, as well. Many people don't understand that they have been caught in that trap. In that case, It is especially hard to predict what the balance of that card's account will actually be at the end of the billing cycle... for this very reason.

That's why it is best to always pay the balance of every card in full each month, if at all possible. For each card that is always paid off in full each month, there will be no interest to pay on that particular credit card's account, at all. :-)
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Karisa Russell, Official Rep

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Hi Charlie, 

Sorry I wasn't clear! Goodbudget helps you budget with your 'total', which represents the balances of all of your Accounts (Checking, Savings, Cash minus Credit Cards). 

So, if you have 1000 in your Checking Account, and 200 on your Credit Card, Goodbudget will help you budget with your total of 800. 

Hope that's more clear. 
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John Vander Stel

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There is a specific important distinction that most people don't fully understand about how credit cards work. 

If one always pays off a card's balance in full each month, one does not have to pay any interest on those charges, whatsoever.  This is like getting an interest-free short-term loan!  It is a good perk that offers you extra cash flow, but there is a huge trap that you must be aware of and avoid!

If one cannot pay off the entire balance in full at the end of the month, one will have to start paying interest on even all new charges on that card, thereafter, as well ... even if one does actually pay those particular new purchases off in full at the end of each month!  This is a very real and dangerous hidden trap!

Because of this trap, it's best not to charge more purchases on cards with statements that can't already be paid in full each month. 

Instead of charging more daily purchases on a card that is not already being paid off in full each month, it's best to either not charge anything at all or just put your new charges that you can pay off in full each month on a different card that has no outstanding old balances, at all.  That way, you can avoid being trapped into paying interest on your new immediate purchases, as well. :-)

This distinction is very important. Credit cards can indeed be used to your advantage, but only if you avoid this hidden trap!

GoodBudget can help you by actually preventing you from falling into this trap again in the future.

GoodBudget makes you take the money for your new purchases from money you already have. (money currently in your envelopes) 

GoodBudget, in effect, puts that money aside and out of sight so it can be used to pay that card's statement off in full each month... thus avoiding that dangerous trap!  :-)

For those who already have credit card debt that can't be paid off in full, the piper must still be paid... but GoodBudget can help you to avoid getting into even more credit card debt. :-)

GoodBudget can also help you save to pay off your preexisting debt! :-)

Cheers!

John Vander Stel
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Marie Weir

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Hi everyone,
Here is the solution I use:

1. Set up the credit card accounts following the directions by Goodbudget 
2. Set up a credit card account under accounts as directed by Goodbudget
3. Buy groceries:
    A. Enter groceries into groceries envelope as directed by Goodbudget
    B. Enter Credit Card Charge using the direction for Tracking Interest and Fees by                  Goodbudget
    C. Enter a Deposit into your credit card account under accounts (to add the money in             to the unallocated funds) as directed by Goodbudget
4. Make the credit card payment as directed by Goodbudget

So basically you have to enter the groceries purchase three times. It may seem strange to make a deposit into the credit card account under accounts. But think of it as if the credit card itself is the money just as your automatic deposit is your money. The good news of all the account set-ups and entries is they come out correct and you can still use the reports. I really hope this helps and is easy to follow. Good luck
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Colin Grant

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The best way is to pay the credit card off in full each month. The need for extra envelopes and transfers between them then goes away.
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Lori Robinson

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This is the way I handle it.  

I set up an account for my "credit card"  as instructed by Good Budget with a matching envelope for that "credit card".  

Say I make a purchase for gas for $30.00.   I go under "add transaction"  "income".  I enter $-30.00 for income for that "credit card" account.  I then go "fill envelopes" and enter from "unallocated" $-30.00 for that "credit card" envelope.  

So I make several other purchases for say $50 in groceries and $20 for the movies.  I handle each charge as above.

Now my total on my card is $100.   When I am ready to pay, I transfer $100.00 from my checking account to the credit card account I made a payment to.  Then for my envelopes I do individual transfers of $30 from my "Transportation" envelope to my credit card envelope, transfer $50.00 from my "grocery" envelope and a $20 transfer from my "entertainment" envelope all to that "credit card" envelope.  

This way both that "Credit Card" account and envelope will balance and the amounts you spend in each of those category envelopes will be allocated correctly and therefore you will still be able to track your spending. 
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John Vander Stel

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The main problem is that the money you spend out of your envelope using a credit card will still be in your checking account until it is actually paid back to the credit card company.  That is why I simply establish a credit card envelope and upon a credit card charge, I simply transfer that amount from the appropriate expense envelope to the credit card envelope so the money is there in the credit card envelope to pay off the credit card bill in full each month.  That messes up the reports, but I choose to not use the reports, at all, because as long as I use my envelope system correctly to pay off my credit card bills in full each month, my checking account balance will always reflect the true status of my checking account (since the money is still in there to cover the upcoming credit card bill), my credit card envelope will always reflect a positive version of the true credit card balance, and the funds that I have tied up to pay my future cred card bills in full will always be isolated so they don't get spent before the credit card bills come in.

If one is carrying a balance from one month to the next, one is now paying interest even on new purchases, as well, thus making it hard to track what one will actually owe to the credit card companies when the bills actually come in.  In that case, one would still have to estimate what the additional interest payments would be and try to allocate that amount to a separate "Credit Card Interest" envelope at the beginning of the month to cover the new interest charges that will come later, just to ensure that even more debt is not generated.

It would be extremely difficult to input all of the individual terms and interest percentages for each individual credit card into GoodBudget.  Even if that could be done, it would still be extremely difficult for GoodBudget to predict an adequate estimate of what the interest charges will actually come to in the future.  The user would still always need to estimate in the attempt to ensure that enough is set aside each month to cover enough of the credit card interest payments, as well as the interest for new purchases so one does not generate even more debt than before!  That spiral is a dangerous one that GoodBudget is supposed to be trying to help the user avoid!

I hope that the process I use and the thoughts I have expressed above will give the GoodBudget team some good ideas on how to help GoodBudget better handle credit cards... even for those who are already stuck in the debt spiral.  GoodBudget should, at the very least, discourage the user from going into even more debt so the user can successfully start to pay off their credit card debt, for good!
(Edited)
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Lori Robinson

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See I do pay off my credit card each month.....but I use one credit card that I get outstanding rewards for and then once a year I use those rewards towards my vacation.  The way I described above allows me to track expenses where they are going each month but still enter a transaction every time I purchase something to show how much my balance is on my card.  Some people like reports on where their money is going.  This way they can track their spending and see on their reports where the money is going.  It is best to pay off cards each month but I know a lot of people like me that use their cards each month to earn rewards then pay off the cards every month. If someone is carrying a balance, then the interest can be handled like a purchase on that card. Trying to track credit card debt and expenses makes a system like Goodbudget more difficult to use unfortunately.  Goodbudget works great for me and when I use it consistently I am able to control my spending and save a lot of money plus I like the fact that this site does not have access to my banking information.  It's just a learning curve to figure out how to make work for yourself.

I, like many other people, were mainly looking for the steps on how to enter credit card transactions and payments and still make all the accounts and envelopes' balances still be correct. Otherwise you cannot reconcile the accounts correctly.  I want my bank account balance to reflect exactly how much is in my account.  My credit card payment is just like any other bill of the month.  
(Edited)
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impaler

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This is a great discussion.  I am proud of the fact that through GB, between January and now, and aggressively paying down debt, I have zero credit card debt.  Though this process, I've handled it the way Karisa suggests, and created a "debt pay down" envelope, and treated it like a bill like any other.  Now that they're all zeroed out, I'm wondering if I should even track all the cards, since I kind of have a fresh start, or just leave it be and when I have an expense, treat it as a transaction.  I want to know better what I'm actually buying, no matter the account that I debit it from/charge it from.  "Debt pay down" in my reports isn't specific enough.  Lori's method seems to make the most sense for me.  I'll let everyone know how it goes.  Meanwhile, any suggestions are recommended.
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impaler

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I might be missing something...and maybe I'm overthinking this.  

Let's say my checking account has a balance of $7,524.86.  I go to get gas for my car.  I buy $20 in fuel.  I have a Fuel envelope.  I record a transaction for $20, from the Fuel envelope, out of the credit card account.  The checking balance has not changed, because no charge has been made to the checking account.  The transition was still taken from the envelope as it was still a budgeted expense.  The only reason to do this is for the points I get on my credit card.  

If I then pay the credit card off, I just do a account transfer from checking to the card account.  This moves the funds out of checking and pays the card off.  This also ensures the expense (how you’re spending funds) is indicated during the initial transaction via the credit card account.  Indeed, when I go into reports, it shows I spent $20 on fuel.  When the transfer is done, the funds actually move from the checking balance and should reflect the new balance of $7,504.86.  This also reflects correctly in spending by envelope report.  

It sounds like the issue is between when the credit card is charged, and when it is paid off, especially with multiple transactions.
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Colin Grant

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That's exactly how it works, much the same as in YNAB. Not quite sure what your worry is - is it that the cash is showing in your bank account? If so that is perfectly correct but should not concern you as you should be spending on the back of envelope balances, not bank balances. Available funds = envelopes plus unallocated.
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impaler

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My primary worry is if I have multiple transactions to a credit card from multiple envelopes, tracking them as I go.
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Colin Grant

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They are all detailed in the credit card account which shows the transaction and the envelope.
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Karisa Russell, Official Rep

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Hi impaler, 

I think Colin answered your question, but let me know if you're still confused!

The way you were describing tracking CC Accounts in Goodbudget is correct. Really, your CC Account is Goodbudget can be treated the same way as a Checking Account is treated. Throughout the month as you make purchases with your real life credit card, you'll add those expenses to the correct Envelope and your CC Account. The difference is that when you add a CC expense, the balance of the Account will get larger indicating that you owe more on the card. Then, when you're ready to make your CC payment, you'll do that with an Account Transfer. 

Hope that helps!
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impaler

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Hi Karissa,
Colin did answer it and I’ve been able to put it into practice this way.