Debt Payoff Strategies: How (and when) to pay off debt

Earlier this week we published an article emphasizing the importance of getting debt paid off. Today, we’re offering a strategy guide.

What’s the best debt-payoff method?

It depends on who you ask. We compared Dave Ramsey’s approach, Investopedia advice, and advice from BiggerPockets (a finance and real estate investing podcast and blog), and worked up a comparative analysis of the varying methods so that you don’t have to.

First we’ll play out some definitions to ensure we’re on the same page, then we’ll work through the comparative analysis.

Let’s dive in!

Quick Definitions

• Debt Snowball: pay debts from smallest balance → largest to build momentum (championed by Dave Ramsey as part of his Baby Steps).

• Debt Avalanche: pay debts from highest interest → lowest to minimize total interest paid (favored for math-optimal payoff).

• Debt consolidation / balance transfer / refinance: combine or move balances to lower interest or simplify payments (can reduce interest and simplify management, but may have fees/qualification).

• Strategic / productive debt: BiggerPockets often treats certain debt (e.g., mortgages used for appreciating real estate) as a tool rather than an absolute evil; the recommendation differs for “bad” consumer debt vs. “good” leveraged debt.

As a reminder: Let’s Talk Money and its authors engage in providing educational content and this should not constituted financial advice. Seek professional help for individualized advice on personal situations and tax-implications.

Comparative analysis — methods, mechanics, pros & cons

1) Debt Snowball (Ramsey)

Mechanics: List debts by smallest balance first; pay minimums on all, throw extra cash at the smallest until it’s gone, then “roll” that payment into the next smallest. Central to Ramsey’s Baby Steps.

Best for: People who need quick wins and strong behavioral reinforcement; those who struggle to stay motivated.

Pros

• Quick psychological wins increase likelihood of sticking to the plan.

• Simple to implement and track.

Cons

• Typically costs more in interest vs. avalanche (because interest rates are ignored).

• Not mathematically optimal if minimizing dollars paid is the priority.

2) Debt Avalanche

Mechanics: Rank debts by highest interest rate first; pay extra to the highest-rate debt while making minimums on others.

Best for: People focused on minimizing total interest paid and who are disciplined enough to stick with a plan that may show slower early progress.

Pros

• Lowest total interest paid and usually the fastest payoff in dollars and months.

Cons

• Fewer early “wins” — can feel discouraging and harder for some to maintain.

3) Debt Consolidation / Balance-transfer cards / Personal-loan refinance

Mechanics: Move several high-interest balances into one lower-rate loan or 0% APR promotion to simplify payments and lower interest while you pay principal.

Best for: Borrowers with good credit who can qualify for low rates or 0% transfer offers and who can pay during the promo period.

Pros

• Can materially reduce interest and speed payoff.

• Simplifies to one payment; can improve cash flow and reduce late-fee risk.

Cons

• Balance-transfer fees or origination fees may offset some savings.

• Temptation to rack up new credit card debt if spending habits aren’t changed.

• If you miss the promo or can’t pay before it ends, rates can jump.

4) Debt Settlement / Negotiation

Mechanics: Negotiate with creditors to accept less than the full balance (often through a settlement company or direct negotiation).

Best for: People facing serious hardship who can’t realistically pay debts; last-resort option before bankruptcy.

Pros

• May reduce principal owed.
  Cons

• Damages credit score, can trigger taxes on forgiven amounts, and creditors may not agree; often expensive when using settlement companies.

Please note, if you are considering this option we highly recommend you consult with a finance professional to review your specific situation. We do not necessarily recommend this option, but it is a viable option for those who need it.

5) Hybrid & Behavioral Tactics (snowflake payments, biweekly, automations)

Mechanics: Combine methods — e.g., use avalanche for high-rate debts but apply snowball psychology by grouping small balances for quick wins; automate extra payments; use any windfalls aggressively. We, along with BiggerPockets and other personal finance sites, recommend pragmatic hybrids.

Best for: People who want math-based savings but need behavioral nudges.

Pros

• Can capture interest savings while keeping motivation.

Cons

• Slightly more complex to manage; requires discipline to stick with automations and not re-borrow.

6) When you shouldn’t aggressively pay down certain debt (BiggerPockets nuance)

BiggerPockets emphasizes that not all debt is equal: mortgage or cheap long-term debt used to buy appreciating real assets can sometimes be strategically maintained while you invest excess cash, depending on risk tolerance/returns. They distinguish “bad” consumer debt (high-rate cards) from “productive” leverage. This perspective contrasts with Ramsey’s broad recommendation to pay off all debt (except house) early in his Baby Steps.

Implication: If your goal is wealth building (e.g., real-estate investing), it may make sense to keep low-cost, tax-advantaged debt while paying off high-interest consumer loans first.

Short decision matrix — pick a strategy based on goal + personality

• You need motivation & quick wins → Debt Snowball (Ramsey). Good behavioral fit; accept some extra interest.

• You want to minimize total dollars paid and can stick with it → Debt Avalanche (math-optimal).

• You qualify for lower rates and want faster payoff without changing plan → Consolidation / Balance Transfer / Refinance (watch fees and promos).

• You’re investing or using leverage for property → consider BiggerPockets’ view: treat mortgages or strategic leverage differently; prioritize removing high-cost consumer debt first.

• Severe hardship or inability to pay → explore settlement or credit counseling, but know the credit and tax consequences.

Practical Tips

• Always make at least minimum payments to avoid penalties.

• Tackle high-interest consumer debt (credit cards, payday) first in almost every scenario — it’s expensive and compounds quickly.

• Use automation, budgeting, and an emergency buffer to avoid going back into debt (Ramsey’s Baby Steps emphasize a starter emergency fund).

Summary

1. If you’re easily derailed: use Debt Snowball — list smallest balances first, close accounts only if it helps discipline.

2. If your top objective is saving money and you’re disciplined: use Debt Avalanche or consolidate to a lower rate.

3. If you’re an investor or using leverage: treat mortgages/low-rate business debt differently — pay down consumer debt first and consider investing opportunities (the BiggerPockets view).

If you found this helpful, share it with someone who can act as your accountability partner (you don’t have to share your real numbers, just that you’re working on debt pay down). You can also share it with anyone who might need it.

---

Want even more resources or to talk to me (and others) about your money journey? Join the Financial Freedom Academy here.