We introduced Payment Strategies to help you automatically manage credit cards with a strategy tailored to your credit situation and budget. With automated payment strategies now available in the app via IncrediPay, we wanted to provide a detailed look into each option so you can make an informed decision on which one suits you best.
So, which strategy is right for you?
Managing multiple credit cards on a limited budget can be confusing. When deciding which cards to pay off first, there are 2 main factors to consider.
- The interest rate on each card
- The remaining balance on each card
Let’s explore the three primary strategies available:
Avalanche
The Avalanche strategy targets the credit cards with the highest interest rates, and is most ideal if your goal is to save money.
Example:
Consider the following credit card balances and interest rates:
- Credit Card 1: Balance of £5,000 at 8%
- Credit Card 2: Balance of £3,000 at 30%
- Credit Card 3: Balance of £7,500 at 14%
With Avalanche, the priority would be to pay off Credit Card 2 with the 30% interest rate, despite it having the smallest balance. If you’ve allocated £300 per month towards IncrediPay, this amount would go towards paying off Credit Card 2. Once that card is paid off, the focus would move onto Credit Card 3 at 14%, then finally Credit Card 1 at 8%.
Snowball
The Snowball strategy focuses on paying off the account with the smallest balance first. It is a straightforward approach to implement and can provide a sense of accomplishment as you eliminate smaller debts quickly.
Example:
Consider the following credit card balances and interest rates:
- Credit Card 1: Balance of £7,000 at 8%
- Credit Card 2: Balance of £5,000 at 10%
- Credit Card 3: Balance of £1,500 at 25%
With Snowball, you’d start by paying off Credit Card 3 with the £1,500 balance. With £200 allocated towards IncrediPay a month, Snowball would direct that to payment towards Credit Card 3. Once that’s paid off, the priority would move onto Credit Card 2 with the balance of £5,000, then finally Credit Card 1 with £7,000.
Credit Boost
Credit boost, which is similar to a traditional credit utilisation loan, targets the credit card with the highest balance, aiming to lower your credit utilisation ratio. This is particularly important if you are planning to apply for a loan in the near future, such as a mortgage.
Example:
Consider you have the following balances and interest rates:
- Credit Card 1: Balance of £15,000 at 10%
- Credit Card 2: Balance of £3,000 at 8%
- Credit Card 3: Balance of £2,000 at 25%
If your total credit card limit is £4,000, with the current balance across your 3 credit cards adding up to £2,000, your credit utilisation ratio is 50%. This strategy aims to reduce that ratio.
We hope this breakdown has clarified how each strategy works and how it might fit your financial situation. Managing these strategies on your own each month can be challenging, which is why we've developed IncrediPay – to simplify your credit card repayments.
Have you had a chance to try out Payment Strategies? You can let us know what you thinkin the app or alternatively, send your suggestions to support@getincredible.com. We appreciate your feedback.
As always, Stay Incredible!
