Programs for Snowballing Debt

If you make the minimum payment on a $6,000 credit card balance with an interest rate of 17.9 percent, 37 years later you'll have paid off the balance along with more than $15,000 in interest, according to Consumer Reports. The snowball approach to paying off debt calls for you to pay more than the minimum payment on your smallest credit balance. The goal is to take out your debts one at a time, from smallest to largest.

Self-Help Strategy

Paying off your smallest debt builds momentum, giving you an incentive to keep plugging away at your debts one at a time until you're debt free. Your first step is to gather recent statements for each of your credit accounts, with the exception of your mortgage. Write down your debts in order from smallest to largest balance. Determine the maximum amount you can budget monthly to your credit accounts. The goal is to make the minimum payment on all the accounts except the one with the smallest balance. Apply the remainder of your budgeted funds to the smallest debt until it's paid in full. Once you've paid off the first account, allocate that payment to the second smallest debt. This is in addition to the minimum payment you've been making on the second account.

Credit Counseling

If you lack the discipline needed to stick to your budget or if you're unable to make even the minimum payments, credit counseling may help. A credit counseling agency may recommend a debt management plan, which generally follows a similar approach to the snowball method. The Federal Trade Commission cautions that not all nonprofit credit counseling organizations are affordable or legitimate. Refer to the U.S. Trustee Program's list of approved agencies for help finding a reputable organization.

How it Works

Credit counseling agencies may be able to negotiate a lower interest rate with your creditors and have late or over-the-limit fees waived on your accounts. The agency establishes a payoff schedule and determines how much you need to pay each month to get out of debt, which may take four years or longer. You transfer the payment for the debt management plan to the credit counseling agency each month. This money is then applied to your accounts. Typically debt management plans allocate minimum monthly payments to all the accounts except the one with the highest interest rate, which is paid off first.

Considerations

You may be able to negotiate lower interest rates with your creditors on your own, particularly if you have a history of timely payments, but success with this strategy varies by creditor. If you can afford even an extra $25 dollars a month on your smallest account balance, you'll start to make headway with your debts, whether your interest rate gets lowered or not. For the snowball approach to be effective, you have to stop using available credit on your accounts. Keep the accounts open, though, because accounts with a zero balance may improve your credit score, according to Consumer Reports.