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Using PayPal Credit in QuickBooks Online…and why you shouldn’t

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PayPal has a new service called PayPal Credit. It’s a credit card, sort of.

By default, if you don’t have enough money in your PayPal account for a purchase, PayPal transfers money out of your bank account automatically. If you turn on PayPal Credit, this balance will accumulate in your credit account by instead.

The benefit is that instead of constant charges hitting your bank account (some of them partial because you had some money in your PayPal account but not enough), you only have one total bill to pay at the end of the month.

But that’s the only benefit. The drawbacks are plenty.

First, PayPal Credit’s interest rate is 19.99%. They offer a promotional period of no interest for 6 months…but the fine print is telling:

PayPal Credit Deferred Interest Terms

Even though you don’t pay interest when you open the account, you’re still accumulating interest that will come due when your promotion expires, if your purchases haven’t been paid in full.

The second drawback is how confusing PayPal Credits looks inside accounting software like QuickBooks Online. Not only do you see the actual expense in your PayPal register, but you also see the charges listed in your PayPal Credit Card register. Then when you pay the outstanding balance, you see the payment in your bank account, and the money goes to your PayPal account…and then gets transferred to the PayPal Credit account.

It’s so confusing that unless you are extremely careful, you can duplicate your expense up to four times!

To prevent this, only categorize the expense when you’re looking at the PayPal register. Don’t track the PayPal Credit card expenses at all. Use Transfers to move money between PayPal, your bank account, and PayPal Credit.

To see a demonstration, please watch our video on YouTube:

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