Handling Debt

Overview

Principal Plan provides three account types for tracking debt: Credit Card, Loan, and Mortgage. All three work the same way: the account carries a negative balance that represents the amount you owe. Pair the debt account with a debt envelope so the account view and envelope view track the same obligation.

For credit card spending, see the Using Credit Cards topic.

Setting Up Debt

1. Create a debt envelope, such as "Car Loan," "Mortgage," or "Student Loan."
2. Create a new account and choose Loan, Mortgage, or Credit Card as the type.
3. In the new account's ledger, enter an opening transaction for the current amount owed as a negative number (for example, -15,000 for a $15,000 car loan), and assign that transaction to the matching debt envelope.

After setup, the debt account and debt envelope show the same negative balance. You can use one debt envelope for multiple debt accounts if you want to track them as a combined obligation. Because a debt envelope is intentionally negative, turn off its watchdog.

Budgeting for Payments

Allocate income to the debt envelope when you receive money. This sets money aside for the payment and decreases the negative balance in the envelope view.

For example, allocating $400 to a "Car Loan" envelope changes the envelope balance from -15,000 to -14,600. The account balance remains -15,000 until you actually pay the lender.

Paying the Bill

When the bill is due, record an account transfer from your payment source (typically checking) to the debt account:

• The checking account balance decreases by the payment amount.
• The debt account balance increases (moves closer to zero).
• The debt envelope balance does not change, because you already allocated the payment money to that envelope when the income arrived.

After the transfer, the debt account and debt envelope match again. In the example above, both show -14,600 after the $400 payment is recorded.

Recurring Payments with Templates

Most debt payments happen on a regular schedule. You can create a transaction template for the payment transfer from checking to the debt account.

Use the Allocation Plan to allocate income to the debt envelope. Use a separate payment template to create the account transfer when the bill is due.

Interest and Fees

Interest charges and fees from the lender increase the debt. Record them as account transactions in the debt account. You can assign those transactions to the matching debt envelope too, so both views continue to match. Some users create a separate "Interest" envelope to track how much they are paying in interest over time. If you track interest separately, allocate income to that envelope as well so it remains funded.

Tracking Progress

Open the debt account's ledger to see payments and charges. Open the debt envelope's ledger to see the budget activity for the same obligation. As payments accumulate, both balances move toward zero.

The Envelope Activity report can show how much you have allocated and spent on debt payments over any date range, helping you track progress against your payoff plan.

Multiple Debts

If you have multiple debts, consider organizing them in an account group. Create a Group account called "Debt" and drag your loan, mortgage, and credit card accounts into it. The group's balance shows your total debt at a glance.

Similarly, you can nest debt envelopes under a parent "Debt Payments" envelope to see your total debt obligation in one place.