Debt Avalanche vs. Debt Snowball: How to Get Out of Debt

When you owe money in several places at once — a credit card balance, a personal loan, a store card, money borrowed from a relative — it is easy to feel stuck. You pay a little here and a little there, the balances barely move, and every month feels the same. The problem is often not how much you pay, but that the payments have no strategy. Two methods have helped millions of people out of debt, and both start with the same steps: list every debt with its balance, its interest rate and its minimum payment, and commit to paying the minimum on all of them, every month, without exception.

Then you decide where the extra money goes. With the avalanche method, you put every extra peso toward the debt with the highest interest rate, while paying the minimum on the rest. When it is gone, you take everything you were paying on it and add it to the debt with the next-highest rate, and so on. Mathematically, this is the best option: it minimizes the total interest you pay and usually gets you out of debt sooner. In Argentina, that almost always means attacking credit card balances first, since financing a card is typically far more expensive than a personal loan.

The snowball method, popularized by Dave Ramsey, orders the list differently: you pay off the smallest balance first, regardless of its rate. Then you roll its payment into the next smallest, and the payment grows like a snowball rolling downhill. It costs a bit more in interest, but it gives you early wins. That matters more than it seems: a study by Kellogg researchers Alexander Gal and Blakeley McShane, analyzing thousands of people in debt settlement programs, found that closing individual accounts predicted who eventually paid off all their debt better than the size of the balances they paid down.

So which one should you choose? If you are disciplined and motivated by numbers, choose the avalanche: you will save money, sometimes a lot. If you have tried before and given up, or the sheer number of debts overwhelms you, choose the snowball: seeing a debt disappear in the first month or two can be what keeps you going. And if your debts have similar rates, the difference is small anyway. The worst option is not one method or the other; it is having no method at all and spreading extra payments randomly while new debts keep appearing.

Whichever you choose, make the plan visible. In Mingüini's Finance module, register each debt in the Loans tab with its amount, annual interest rate and term: you will see the monthly payment, how much of it goes to interest, the remaining balance and the expected payoff date. Note their rates and balances side by side and you have your avalanche or snowball order. Add a habit to make the extra payment each month, and avoid taking on new debt while you are paying off the old one — otherwise you are bailing water from a boat with a hole in it. Every debt you close frees up money for the next one, and then for your future.