Debt Strategy

Sort it before you attack it

Every debt has an interest rate, and that number tells you almost everything about how urgently it deserves your attention.

Expensive debt: credit cards, payday loans, some personal loans, store cards. Often in the high teens or twenties. This is the emergency. Paying off a card charging 22% is the equivalent of a guaranteed 22% return, which no investment can promise.

Middle debt: car loans, student loans, some home equity borrowing. Typically mid-single digits. Worth paying down steadily, but not worth sacrificing your employer match or emergency fund to eliminate.

Cheap debt: most mortgages, especially older ones at low fixed rates. There’s no prize for rushing this. Money that would prepay a 3% mortgage usually does more for you invested, and the tradeoff is closer to a preference than a mistake.

Write every balance down in one place, with its rate. Most people have never seen the whole list at once, and the list itself often changes what they want to do next.

Two ways to pay it down, and the honest case for each

Highest rate first (the “avalanche”). Pay minimums everywhere, then throw everything extra at the most expensive debt. Mathematically optimal: you’ll pay the least total interest and finish soonest.

Smallest balance first (the “snowball”). Pay minimums everywhere, then attack the smallest balance regardless of rate. Costs slightly more in interest, but you eliminate whole debts quickly, and each one that disappears frees up a payment and delivers a real psychological win.

We’ll say the quiet part out loud: the second method is worse on paper and better for many people in practice, because a plan you abandon in month four returns nothing at all. If you’ve started and stalled before, the snowball’s early wins may be worth more than the interest they cost. If you’re motivated by the math itself, the avalanche is genuinely better. Pick the one you’ll actually finish.

Where debt fits against everything else

Debt payoff competes with saving and investing for the same dollars. A workable priority: capture the full employer match first (it’s an instant return no debt payoff can match), keep a starter cash cushion so a surprise doesn’t send you back to the cards, then attack expensive debt with real intensity, and once it’s gone, redirect exactly those payments into investing rather than absorbing them into everyday spending. That last step is where a lot of hard-won progress quietly evaporates. (The Fund It In Order guide lays out the full sequence.)

Refinancing, consolidating, and the trap inside both

Consolidating several expensive balances into one lower-rate loan can genuinely help: one payment, less interest, a visible finish line. It fails in one specific and very common way: the cards get paid off, stay open, and slowly refill, leaving you with the consolidation loan and the balances you started with.

If you consolidate, decide in advance what happens to the paid-off accounts, and be honest about what created the balances. A rate is a symptom; spending patterns are the cause. Same caution with borrowing against your home to clear credit cards: it converts unsecured debt into debt secured by the place you live, which is a meaningfully different kind of risk.

When debt isn’t the real problem

Sometimes the balances are a cash-flow story, not a discipline story: income that doesn’t cover a genuinely reasonable life, or a run of medical bills, or a job loss. If that’s the situation, the honest advice isn’t “budget harder.” It’s to look at the whole picture: income, insurance, benefits you may not be using, and whether the plan needs restructuring rather than more willpower.

That’s a conversation, not a worksheet. If it sounds like yours, call us. There’s no cost, no obligation, and no version of this where we make you feel bad about the numbers.