Debt: get out of expensive debt in the right order

Debt is the quiet leak in a lot of FIRE plans. You can be saving hard and investing well, but if a credit card is charging you 20% a year, you're pouring water into a bucket with a hole in it. Clearing expensive debt is often the highest-return "investment" you'll ever make. Here's how it fits into the plan.

Pay off expensive debt first

There's a simple test: is the interest rate on the debt higher than what you'd reasonably expect to earn investing?

A broad stock market might return something like 5–7% a year after inflation over the long run — and that's uncertain, with plenty of down years. A credit card charging 20% is a guaranteed 20% loss you can erase. Paying it off is a risk-free return no fund can match. So high-interest debt beats investing almost every time. That's why, for most people, the order is: clear the expensive debt, then pour money into investing.

Two ways to attack it: snowball vs. avalanche

Once you decide to clear your debts, there are two well-known methods. Both work — the best one is the one you'll actually finish.

The avalanche targets the debt with the highest interest rate first, while paying minimums on the rest. This is the mathematically cheapest route: you kill the most expensive debt fastest, so you pay the least interest overall.

The snowball targets the smallest balance first, regardless of rate. It costs a little more in interest, but you clear a whole debt quickly — and that early win is powerful. Watching one debt vanish, then another, keeps a lot of people going when a spreadsheet wouldn't.

Pick avalanche if you're driven by the numbers. Pick snowball if you're driven by momentum. Finishing beats optimising.

Not all debt is the enemy

Debt isn't automatically bad — the interest rate is what matters.

A low-rate mortgage or student loan sits in a grey zone. If it's charging you 3–4%, rushing to overpay it instead of investing may actually slow your FIRE journey, because your money could work harder in the market. There's no single right answer here — some people love the certainty of being debt-free and pay it down anyway, and that's a valid choice. Just make it on purpose. Split your debts into "expensive, clear it now" and "cheap, in no rush", and treat them differently.

Where debt sits in the plan

A rough order of operations for most people:

1. Cover the basics and a small emergency buffer so you don't create new debt.
2. Crush high-interest debt using snowball or avalanche.
3. Then invest the freed-up cash into broad index funds.
4. Decide deliberately about any low-interest debt — pay down or invest, your call.

Clearing a leak is the same as raising your savings rate — the freed-up payment now works for you instead of the lender. Once the expensive debt is gone, point that money at what FIRE is really about and check your timeline in the tools.