# Credit Cards and Actual Budget

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.

:::note
Any Revolving Credit Account that has both purchases and payments in any month should be treated as a credit card, not as a loan. Use [Carrying Debt](./carrying-debt.md) if the balance is not paid off every month.
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:::warning
We recommend that you place all your credit card accounts **On Budget**. You can [close](/docs/accounts/index.md#closing-or-deleting-an-account) an On Budget account when you are through with it (and reopen, if necessary) but you **cannot** change an Off Budget account to On Budget! _Only_ set a credit card account to Off Budget and treat it as a loan if there will be _no_ new purchases and the account will be closed once it's paid off.
:::

If you pay off your credit card statement every month, then you will want to use the [Paying in Full](./paying-in-full.md) page to understand how Actual helps you work with your credit card to stay _Within the Budget_.

If you are unable to budget for and pay your credit card outstanding balance **in any month**, then we also have you covered, see the [Carrying Debt](./carrying-debt.md) page for a step-by-step guide on how to set up Actual and track this debt in a safe and sustainable manner.

**tl;dr. If you don't budget funds you don't have and don't spend money that is not covered in your budget, you will not incur any new debt and always have enough funds to pay for your new credit card purchases whenever you want!**

Actual treats credit card accounts like any bank account, but with a negative value. These negative account balances are subtracted from your positive deposit account balances to give your available "On Budget" funds. As you make purchases with your credit card, the credit card account balance goes further into the negative, thus reducing your available "On Budget" balance. The same thing happens when you pay a utility bill or make a purchase from a checking account - the available "On Budget" balance decreases. When you categorize these expenditures from a budget category with a positive balance, you determine from what envelope the money comes. Since you only put real money in the envelopes at the start of the month, you know you have enough to cover the expenditures regardless of what account they came from.

When you transfer money from On Budget to On Budget accounts, the On Budget balance stays the same, it doesn't matter what type of account it is. When you make a credit card payment (transfer), you bring the credit card account balance closer to $0.00 and your checking account closer to $0.00 by the exact same amount, but in opposite directions! You will move the same amount of money out of your checking account just as if you made those purchases with your checking debit card, you'll just do it a bit later, when the credit card statement comes. Remember, the purchases are deducted from the budget when you assign them a category.

:::note[Here's an example that may help:]

Imagine you have a checking account with $1,000, and Savings with $4,000, so you have a total of $5,000 in the budget.

You spend $50 on a new jacket using your checking debit card, from your funded Clothing category. The money leaves the budget, the checking account balance drops to $950. The total On Budget balance is now $4,950.

If you want to top up the checking back to $1,000 you just make a transfer of $50 from Savings to Checking. You don't need a category, since the On Budget balance doesn't change. You could transfer any amount over, and it wouldn't matter.

Now imagine the same scenario, but the Checking balance starts at $0, and Savings is $5,000. You still have the same On Budget balance of $5,000.

After the transaction, Checking is -$50, but the On Budget balance is the same $4,950 as above. And just like before, you can transfer any amount over without affecting that total balance, so the transfer doesn't need a category. You could move as much as you want, but it only takes $50 to get the account back to zero.

As far as Actual is concerned a credit card account is the same as any other account, you just choose to let the balance go negative.
:::

We highly recommend you follow the _Within the Budget_ strategy for credit card use. _Every_ time you make a credit card purchase, enter the transaction and select a category with money set aside in the Budgeted column and a positive Budget Balance.

### Credit card "rules" to stay _Within the Budget_:

- Never Over Budget. Only budget funds you actually have!
- Check your category balance _before_ spending.
- Enter your new purchase transactions quickly.
- Cover all overspending.
- Reconcile your accounts at least monthly.
- Pay _at least_ your statement New Balance before the due date.
- A "Credit Limit" is _not_ an invitation to spend it!

:::note

If you have recently moved to Actual from nYNAB or some other budgeting apps, you may notice that Actual doesn't use specific "credit card" accounts. Read through how Actual treats credit cards above and follow the examples in [Paying in Full](./paying-in-full.md) and in [Carrying Debt](./carrying-debt.md) to learn how Actual handles credit cards.

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