You DON'T Need to Be "Debt-Free" to Reach FIRE

Summary

Podcast Summary: BiggerPockets Money Podcast

Episode: You DON'T Need to Be "Debt-Free" to Reach FIRE
Date: October 24, 2025
Hosts: Mindy Jensen & Scott Trench

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Episode Overview

This episode explores the controversial but practical view that complete debt elimination isn’t a strict requirement on the path to Financial Independence, Retire Early (FIRE). Mindy and Scott dig into the nuanced types of debt, discuss when it’s wise to invest instead of paying down certain loans, and illustrate these concepts using hypothetical personas, real-life examples, and strategic analyses. They emphasize that debt, when handled intentionally, can be a tool for compounding wealth, but must be managed with personal temperament and long-term risk in mind.

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Main Discussion Points & Insights

1. Introduction: Debt and the FIRE Journey

• Not All Debt is Bad: Mindy and Scott challenge the notion that being completely "debt free" is necessary for financial independence.
• Personal Histories: Both hosts only took on mortgage and minimal car loan debt, thanks to parental help with college costs ([01:41]).

2. Good Debt vs. Bad Debt

• Definitions:
  • Good Debt: Typically backed by assets (e.g., mortgages).
  • Bad Debt: High-interest (e.g., credit cards), unbacked by appreciating assets.
• Interest Rate Matters: The higher the rate, the more urgent the payoff ([04:20]).
• Changing Relationship with Debt: Debt's role transforms as you advance toward FIRE—early on, it can be leverage; later, it becomes more of a risk ([03:28]).

3. In-Between Debt: The Gray Area (6%-10%)

• Low-interest loans (sub-2%) are easily justified to keep.
• Ambiguity arises with student and car loans in the 6–10% range.
• Opportunistic investing vs. paying down debt depends on personal risk tolerance and potential investment returns ([04:20]).

4. Case Studies: Craig vs. Carol Personas

Craig: The Extreme Saver and Entrepreneur

• Background: Super-frugal, entrepreneurial, heavy risk-taker.
• Debt Situation: High student loan at 7–8%.
• Strategy: Use excess cash for investing (house hacking, side hustles), only making minimum debt payments ([06:07]).

Carol: The Wary, Responsible Professional

• Background: Married, dual-income, not entrepreneurial.
• Debt: $90K (mostly student loans at 7.5%, car loan at 3.99%), $135K household income.
• Strategy: Favorable to paying off debt aggressively, particularly with fewer aggressive investing alternatives ([07:37]).

Key Insight:

"They should not both pay off their student student loan debt right now because they have very different mentalities... The all out approach of Craig is going to... always [keep debt] in the back of his mind, but he's doing something different."
— Mindy ([07:37])

5. Order of Operations for Debt Repayment and Investing

• General Sequence ([11:55]):
  1. Contribute enough to get full 401k match.
  2. Max out Roth IRA or Roth 401k, if eligible.
  3. Build a solid emergency fund.
  4. Attack student loans and other higher-interest debts.
• Interest Rate Sensitivities:
  • At 6%: Lean more into tax-advantaged accounts.
  • At 8%+: Focus on rapidly paying down debt ([14:53]).
• Age & Time Horizon Matters — Young savers can benefit more from Roth accounts due to growth, but high debt interest rate can override that benefit ([13:21]).

Notable Quote:

"I really don't like 8% debt. I would probably pull back on the HSA a little bit so that I could pay off those student loans faster."
— Mindy ([14:53])

6. Mindset Shifts and Investment Alternatives

• If Willing to Go All-In (Entrepreneurial approach):
  • Take 401k match, skip other retirement accounts temporarily, save large cash pile for business or real estate bets, returning to retirement savings after getting experience ([20:06]).
• Warning:
  • Only skip retirement accounts if you are truly all-in and making measurable progress. If you’re not accumulating cash, pay down debt as priority ([20:56], [22:33]).

Key Reminder:

"If no cash is piling up in the bank account and you are thinking that you're living really frugally and working really hard, something's wrong."
— Scott ([21:21])

7. The "Harold" Persona: High-Earning Specialist

• Example: Young professional on fast track in a lucrative field (e.g., rocket scientist at Lockheed Martin).
• Strategy: Prioritize career development and passive investing in tax-advantaged accounts. Paying off debt is smart as entrepreneurial efforts offer less upside than their career ([24:44]).

"The asset here is my career. I'm going to invest according to a clear tax-advantaged order of operations."
— Scott ([24:44])

8. Debt Payoff Strategies

• Avalanche Method: Pay off highest interest rate balances first (mathematically optimal).
• Snowball Method: Pay off smallest balances first (psychologically motivating).
• Mindy Method: Hybrid—alternate between highest rate and smallest balance for math and motivation ([31:00]).
• Tailoring to Personality: Choose what lets you sleep at night. Debt-averse people should pay it off, even if math says otherwise ([32:46]).

Mindy's Hybrid Approach:

"You make two lists... You tackle the top debt while paying the minimums on all the rest. And then you flip over to the other side... so you're getting the mathematical win... [and] the psychological win."
— Mindy ([31:00])

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Notable Quotes & Memorable Moments

• "If anybody wants to give me a billion dollars at 0%, you can email [e-mail]." — Mindy, joking about free money ([02:35])
• "Debt was a tool to compound my returns... an intentional strategy of leveraging. Here, now, later... I see debt as a risk." — Scott ([03:28])
• "It's both a factor of your investment alternatives and then how hardcore you are going to be willing to be in your, in your life in a general sense." — Scott ([20:56])
• "The math doesn't matter if you can't sleep." — Mindy ([32:46])
• "Debt can be a tool, but you have to use it strategically... Don't just blindly follow what some yahoo on the Internet says." — Mindy ([38:00])

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Timestamps for Key Segments

| Topic | Timestamp | |-----------------------------------------|--------------| | Introduction: Debt and FIRE | 00:00–03:28 | | Good Debt vs. Bad Debt | 03:28–04:20 | | Navigating Middle-Range Debt | 04:20–06:07 | | Case Studies: Craig & Carol | 06:07–10:09 | | Investing vs. Payoff Order | 11:53–16:43 | | Determining Which Debts to Prioritize | 29:19–32:19 | | Harold Persona, High-Income Strategy | 24:44–29:15 | | Debt Payoff Mental Models | 29:19–32:46 | | Psychological Factors and Risk | 32:46–38:24 | | Final Thoughts & Healthy Debt Mindset | 38:24–End |

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Takeaways

• Debt is not inherently bad; context, mindset, and opportunity cost matter.
• Leverage is powerful early on but risky if maintained at high levels indefinitely.
• Order of operations should fit your career trajectory, risk tolerance, and financial psychology.
• Be intentional with your approach: BOTH math and emotions (“sleep at night” factor) count.
• Track your spending and ensure your financial moves are truly moving you forward.

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Transcript

[A]

What if I told you that paying off all your debt might actually be slowing down your path to financial independence? Today we're diving into the controversial idea that not all debt is bad debt and why keeping some debt might be the smartest move. Hello, hello, hello, and welcome to the BiggerPockets Money Podcast. My name is Mindy Jensen, and with me, as always, is my Holds Some Debt co host, Scott Trent.

[B]

Thanks, Mindy. Great to be here borrowing off of your intro. You've also got a mortgage these days, I believe, and finally have some debt back in your life.

[A]

I sure do.

[B]

We recently had Erica on the podcast, actually this Tuesday, and we heard her story about going from $90,000 in debt to a net worth of $2.5 million. It took her and her husband five years to pay off that debt, and during that time, they weren't investing outside of a 401k match. So today we're going to talk about each of our personal stances on debt, and we're going to frame the discussion around folks who have student loan debt or maybe some car debt and those types of things and the nuances of personal situations where I might say, don't pay off that debt and go invest aggressively. And when I might say on the same debt, pay it off and make that your priority. It depends on the person in the context of their situation. I think this will be a fun one and I look forward to any feedback or thoughts in the comments. Yep.

[A]

You can email Scott at biggerpocketsmoney.com or [e-mail] or leave a comment below.

[B]

Let's just introduce the concept here. Mindy, what do you think about having debt in a general sense during your fire journey? Do you currently have any debt? Did you have any as you were building your wealth? What did that look like?

[A]

So, Scott, I have never had debt outside of my mortgage on whatever house I was living in. I didn't have any student loan debts. My parents paid for my college, which was the gift that it was so valuable for me to come out of college without student loan debts. How about you?

[B]

I'm very similar. My parents paid for college. Thank you very much mom and dad for that. That's a wonderful gift. And all of my debt has been mortgages on real estate intended to be used as investments, with the exception of a 1.99% car loan for my 2014, then new Toyota Corolla that I paid off over five years.

[A]

Okay, so is debt, is it debt if there's a 0% interest rate because I did borrow money to buy a car in 2010, but it was a zero percent interest rate.

[B]

Yes. It's debt if you, if you have a zero percent interest rate. Right. Dave Ramsey won't take a billion dollars at zero percent, famously. Right. So I think it's, I think it's a load there.

[A]

If anybody wants to give me a billion dollars at 0%, you can email [e-mail] yeah.

[B]

Or me. Yeah, absolutely. So this concept of good debt versus bad debt, Right. You could argue that my car loan for my first car was bad debt, but it was such a low interest rate that it was very hard for me to justify paying that off at that point in my life. And then, you know, of course, we talk about good debt backed by assets quite frequently here. But I'll also say I was very highly leveraged in these in those early years on real estate, multiple times my annual income, you know, 5% down kind of deal on property. So that was a, that was a big stretch to a certain degree there. It was good debt in the sense that it was backed by an asset. But I did take some, some serious risk, I guess, on those first few properties.

[A]

Yeah. So is good debt versus bad debt just one that's backed by assets and one that isn't? Or is it the, I don't know how I would pay this back if I lost my job. Is that all bad debt?

[B]

I guess. During the journey to fire, debt for me was a tool to compound my returns. It was a lever. It was an intentional strategy of leveraging. And here, now, later in my journey, I see debt as a more of a risk. Right. Debt was offered much more reward on the journey to fire, and now it's much more of a risk, relatively speaking, at this point in my journey. So I, I use much, much less debt. There's probably also a factor of rising interest rates and changing market conditions that makes me feel that way about debt these days as well, compared to how I felt about it 10 years ago.

[A]

I can understand that. It's a lot easier to say, oh, I'll take out a big mortgage because it's only 3%. My mortgage payment is $1500, whatever. And now your mortgage payment is 3500 or 5000 and that's whatever.

[B]

What I think is really interesting, and I think that a lot of people are grappling with, is it's very easy. You listen to bigger pockets money and you have 18% interest rate, credit card debt that can't Be refinanced, you pay it off. Right. Like, like this is not, we're not going to like waste time on that part of the discussion. And I think also it's going to be very difficult for a lot of BiggerPockets Money listeners, at least on the early part of their journey to fire to pay off the 1.99% car loan. I think it's the in between space that's really interesting and unique, especially debt in that kind of 6 to 10% range that, where, when do I pay that off and get really aggressive about that and treat it like an emergency and when do I ignore it and build assets and try to build wealth with better risk adjusted investment opportunities outside that. And I think that's the challenge that really eats at people or gnaws at their brain and, and, and, and, and makes them worry about whether they're doing the optimal thing in their situation. And I thought that a good way to bring this discussion to light is to introduce two characters here. One, one we're going to call Craig and Craig, my friend Craig Kerlop, who has been a guest here on Bigger Pockets Money and a brief background on Craig in his early 20s, joined bigger pockets as a financial analyst. So he worked for me and I was in awe of this guy. He was, you know, I thought I was frugal and hardcore on my journey to financial independence. My good God, Craig, Craig took that to a whole another level. He bought house hacks. He would live in the living room and short term rental, the bedroom while he lived behind a curtain rod that he, you know, that cut off a corner of his living room. Right. He, he of course drove a really, a really cheap vehicle. He was constantly looking for side hustles. He got his agent license and started selling houses while working at BiggerPockets. He had a graduation day, we called it, from Biggerpockets because he, you know, he was selling so much real estate that it was just a great opportunity for him to go and start his own brokerage. It didn't make sense for him to, to be the financial analyst at Biggerpockets anymore. And so he, he was a very entrepreneurial, very hardcore saver, very ambitious to get to financial freedom. Very big thinker, self taught, kind of, I would say obsessive. I think you would agree with that to a certain extent over self improvement and building wealth for a big part of that journey. And Craig also had, I think was 80 some odd thousand, maybe more in student loan debt coming into that situation. And this was at high interest rate 7 or 8%. So we're going to talk about Craig's example here and we're going to introduce his counterpart who we're calling Carol. Right. Carol has, is kind of a more normal financial situation here, more normal approach to money. She is married, she's got a husband. They've got $90,000 in debt, 60,000 of which is in student loans and they've got a car loan, $30,000 at 3.99%. They make 135k in household income. So they're doing well. This is not, this is not somebody who's really struggling to get by, you know, earning, earning 15, 20 bucks an hour and just early in their career. This is someone who's a couple of years into the career but is struggling with the decision about whether to pay down this debt or invest. They're doing the responsible things. They've got a little bit of cash in the bank and like a month or two in emergency reserve. They spend about 100 grand a year. And so they're able to contribute partially but not all the way and fully max out the 401ks. And they're just wondering what do we do next to get ahead on our journey. And I thought we could contrast these two situations. Let's assume both student loan debts are at 7.5% interest. Mindy, should they both pay off the student loan debt or should they both invest? What do you think?

[A]

So no, they should not both pay off their student loan debt right now because they have very different mentalities on what they're doing, where they're going, how they're going to get there. The all out approach of Craig is going to make his student loan debt unfortunate and kind of, you know, always be in the back of his mind, but he's doing something different with the money that he would otherwise be throwing at his student loans. So because he has a plan in place, I wouldn't say he needs to pay off his student loans at this time. Yes, he needs to pay them off. He needs to keep making the minimum payments until he does. Harold doesn't have the same plan. So for her she needs to pay off these student loan debts because she's not thinking differently.

[B]

I think it's completely right. I think it's a question of opportunity cost. Craig has incredible alternatives because of how little he spends, how entrepreneurial he is and how willing he is to use high leverage and how willing he is to reduce risk by keeping his expenses so low and always trying new entrepreneurial things with their low risk and high upside. For Craig, a 7% yield is something that he may get unlucky. He may even get unlucky for years with the house hacks or the market working against him. But you know that the risk adjusted probability of someone who lives in a house, rents out the other bedrooms of that house, runs it like a business, and has plans to scale it while getting their agent license. That person should definitely not pay off their student loans in that situation. And I think that's absolutely the correct choice. And Craig made the correct choice. Now, the alternatives for Carol and her husband are different, right? They're not willing or they're not least currently exhibiting the signs of entrepreneurship, the the all out approach to building wealth that Craig is. And so their alternatives are not as attractive. And now we have a much harder choice. Right? And that's where I would bias them to paying off the student loan debt unless something positive came around like some some sort of major opportunity. Mindy, what would you bias for this couple as a order of operations for managing their money, knowing that their alternative is much more like investing for the long term in stocks and tax advantaged accounts rather than creative or entrepreneurial side hustles and pursuits? All right, we've got to take a quick ad break, but while we're away, head on over to YouTube and subscribe to our channel. That's YouTube.com/@biggerpocketsmoney.

[A]

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[B]

All right, welcome back to the show.

[A]

So assuming that they have a match from their company, I would encourage them to first contribute to get the full match and then I would also. Scott, I am a huge fan of the Roth plans, the Roth IRA, the Roth 401K, if that is something that you can contribute to if your company offers that. But because they're making, what are they making? A hundred? They make 135,000 a year. So they are able to contribute to a Roth. A Roth contribution right now is 7,000 or 7,500 a year. So both of them could contribute to that. They would take the rest and throw it at their student loan debts. I would also encourage them to first have a emergency fund so that they're not constantly throwing more money on their credit cards and. But I really want them to set up their future selves while taking care of these student loan debts and these car debts. How about you?

[B]

That's interesting. You say the Roth. I would have initially biased towards the 401k. Right. Someone has a very long time horizon to invest in this situation. But I think at that income level it's going to be very close and they should do the math and think it through on whether it'll be better to invest in the roth or the 401k for them. But I agree, I agree. I think, I think you take the match and then you max out one or both of those retirement accounts and you let time pass and anything left over you then apply toward the student loan debts at that point.

[A]

Well, because she's so young, because Carol and her husband are so young, I want to see them maxing out their Roth now so that it has all this time to grow tax free. When she pulls it out at the end of her journey at 59 and a half or whatever, she's pulling out all that money tax free as opposed to putting it in the 401k. I don't want to say she's only making 135,000, but she's making 135,000. Reducing her taxable income is probably not going to be foremost in her mind. I'm looking at the giant amount of growth that she is going to pay zero taxes on.

[B]

I think we'll have some tax pros quibble with us, but I think I'm with you on the Roth. I think that's right. I think, I think you take the 401k match, you max out the Roth in the situation, and then you pay off the student loan debt. Now what begins to change that for you? What if that student loan debt was at 6%?

[A]

6%. I would, I might put a little bit more in the 401k depending on where they're coming in in the tax brackets. Because I do like the reduction of the taxable income that a traditional 401k offers. I might actually, I might encourage her to. Because they don't have enough extra money to max out the 401k and the Roth IRA and the HSAs. I would encourage them to first contribute to the 401k to get the match, then max out the Roth and the hsa because the HSA is also gross tax free.

[B]

Now, what if the student loan debt was 8 and a half percent instead of 7 and a half percent?

[A]

I really don't like 8% debt. I would probably pull back on the HSA a little bit so that I could pay off those student loans faster. I would also encourage her husband, who is in sales, to be taking all of his commissions, all of his extra bonus money and throwing that at the debt as well.

[B]

Yeah, I think at eight and a half percent, my mentality begins to shift more towards just taking the 401k match and paying off the debt. Or if I can, if I, if I can refinance it, that's great. But the reason for that, I think, is that at eight and a half percent, the interest rate is high enough and the student loans are enough of a drag on my ability to produce free cash flow in my life that that becomes a higher priority. The Roth is a great benefit 30, 40 years from now for Carol, but paying off that student loan debt at 8 and a half percent will be a big weight off now. And a lot can happen between now and, you know, from now and 30 years. And it's also going to be fairly close, I think, in a nominal sense to what is the historical rate of return in the stock market because it's a guaranteed return and it's so close to what the stock market has historically averaged. I'd be tempted to Pay that off. And I would also be a little bit if I said that, you know, present day, all time high valuations wouldn't also be at the back of my mind at that point in time here in late 2025. Right. Obviously the market could balloon and that could go, you know, that could look silly in hindsight, but I would be very uncomfortable keeping all that debt instead of investing in all time high stock market valuations at that level. And I think that that would begin to change for me at seven and a half percent or six percent in Carol's situation, which is why this situation is so interesting from a financial analysis standpoint. Such a hard and painful decision because there's no right answer to it. But this is how I would think about it in that situation.

[A]

Yeah. And you're asking me what I would tell Carol. Real life, Mindy would be throwing every dollar I could at that debt because I don't want eight and a half percent debt, I don't want seven and a half percent debt. I am very debt averse. So I would want to be paying that off as soon as I could.

[B]

Now let's change things again. Let's say that Carol is. No, I just discovered fire and that is my number one financial priority. And I'm willing now to house hack. I'm willing to, you know, live in a, in a, a very cheap, much cheaper location. I'm willing to sell my car and buy an economy vehicle. I'm willing to pack lunch most days. I'm going to vacation, but I'm going to do it, you know, on travel rewards or whatever. Some, some sort of way to, to get that really cheaper, drive somewhere with it. Now how does that change things for you with the seven and a half percent interest, the $60,000 in seven and a half percent interest student loan debt, do we now still have her go through the tax advantaged accounts?

[A]

I would continue to have her get the match. I would continue to encourage her to max out her Roth IRA and to max out her hsa because you can cash flow your medical expenses right now and then pull that money out later again at 7 1/2% if she wants to hit fire. That's like you said, that's a guaranteed 7 1/2% return. We keep getting these notices that we're going to go in a recession. What is it? Every year since 2013 we've been getting predictions that there's going to be a recession coming up. So having that guaranteed seven and a half percent return is something that's hard to overlook. I don't think I would change my recommendations. Scott, how about you?

[B]

Everything would change at that point for me. Right. It's because the alternatives now are substantially better. The alternatives for the use of cash for Carol in her early 20s or mid-20s, wherever, wherever we are on this journey is so much higher from a return perspective now that we're willing to make that mindset shift and go more all out. We reduce our risk of ever defaulting on the student loans because we're going to drastically cut our spending. Right. You make 135k a year and you go from $100,000 in spending to $60,000 in spending. That's an enormous difference in cash accumulation after tax. And so I would take the 401k match in that situation and I'd stockpile 25, 30, $40,000 in cash. And I would use that cash over the next six to 12 months to house hack, live and flip. Or have one of the spouses either start a business or take a job with much more upside than what is currently offered by the two base salary jobs averaging about $65,000 a year. That would be, the returns there will be so much higher on a risk adjusted basis over a long period of time that it would dwarf the 7.5% guaranteed return of paying off the debt. And this is only a small window in life. Right. And you're, when you're early in getting started and have very little, very low asset base. Right. If they had, you know, a million dollar portfolio, then we're talking, we have a completely different situation that we're going to talk through. Right. And then I would pay off the debt at that point because that would be a wonderful allocation to get a 7 1/2% guaranteed yield on a portion of a million dollar portfolio. But at this point in their life, I think that if they're willing to do all those changes, all of a sudden the risk profile is drastically reduced because our spending went way down and the opportunity cost of paying off that debt has skyrocketed because of our willingness to do something entrepreneurial or to house hack or do something with real estate.

[A]

Okay, that's fair.

[B]

Awesome. So in that case, my order of operations would be take your 401k match, don't contribute to the Roth, don't contribute to the 401k at all. Amass cash and deploy it. Whether that is deployed in a house hack or on a job opportunity or an entrepreneurial venture doesn't matter. And then after one year, this is not like don't invest in your 401k or your Roth for a long time. But after one or maybe two years you go back to maxing those out with an order of operations. Once you've had a couple of repetitions with these bets and have put them into play. And now with our extra cash flow, we can begin maxing out the tax advantage accounts again.

[A]

If you are listening to this show and you think, oh that sounds great, I'll just stop contributing to my 401k, rewind a couple of minutes and listen to Scott again. This is a very specific scenario that he is describing. Not contributing to a 401k for a year.

[B]

This is again an all out approach and again that's I think the nuance of when and where to pay off this middling debt, right? This, this 6 to 9% interest rate debt. We get this question all the time and it's both a factor of your investment alternatives and then how hardcore you are going to be willing to be in your, in your life in a general sense. Because if you're willing to be more like Craig Kerlop and go all out, then again, that's a time when it makes sense to defer paying even high interest rate debt. One trap I'll call out there occasionally. I'll meet folks I think are Craig Kerlop, right, who say they're Craig Kerlop who say they're going to go all out and years go by, two, three years go by and no cash ever piles up in the bank account. And if no cash is piling up in the bank account and you are thinking that you're living really frugally and working really hard, something's wrong. And this does not apply there, right? This is a rare Persona, but something is wrong and I would encourage you to go debt free. If you've been at this for three or four years and you think you're living frugally and trying to amass this cash, I would pay that down. And I think that that's a real red flag as well. If you're thinking about, you know, a house hack or something like that and you just can't accumulate the 15, 20, $30,000 over a year or three, period for the down payment, I think you're gonna have a really hard time doing these kind of entrepreneurial or real estate investing activities. If for whatever reason, it just doesn't seem like cash can come into your life that has to be resolved for a year or two before you can really put yourself in that bucket of the all out person pursuing these other opportunities.

[A]

Yeah. And I think that the problem of I just can't seem to amass cash is a disconnect between what you think you're spending and what you're actually spending. And there's a really easy fix for that. Track your spending. Track every dollar that comes out of your pocket in whatever way you want. Track it on a piece of paper where you have to write it down all the time. That's kind of a pain in the butt backside, but it makes you focus on how much you're spending. Monarch Money is a great spending tracker, net worth tracker that can show you exactly where it's. It's better if you are not paying with a lot of cashier instead doing a lot of swiping. It instantly pops up on your dashboard. You spent this much today? Oh well, I really thought I only spent this much. I forgot about that one purchase or those five purchases. It's so easy to forget about things that you're spending. And I see a lot of people who think they're spending here, but they're actually spending here or here. And that is going to be the difference between being able to amass cash and being able to do these entrepreneurial things. All right, this is our final ad break and we'll be right back with more after this. Auto Trader is powered by Auto Intelligence, the hyper personalized way to buy a car. Auto Traders tools sync with your exact budget and preferences to tailor the online car shopping experience totally to you. Budgeting lets you input your info to see listings in your price range. Search and inventory helps zero in on your dream car. You can choose from new or pre owned, the style of the car and features like engine size, color, all the way down to whether you want a trailer hitch. Go ahead and get picky. Don't worry about scrolling endlessly. Autotrader Powered by Auto Intelligence only shows you vehicles based on what you can afford and what you want. And pricing shows you which listings are the best deals. So so you can feel like you're winning the negotiation without negotiating. You can even choose how to close the deal online at the dealership or a little bit of both. Autotrader Powered by Auto Intelligence makes the process of buying a car less of a process. Try it today. Visit autotrader.com to buy your perfect ride. Thanks for sticking with us.

[B]

Let's continue these scenarios because I think this is, this is fun. Here I have another example of a Persona. I'm going to call him Harold. Harold is a real person, not their real name. And Harold I meet occasionally here in the Denver area and just kind of catch up with. It's interesting because Harold started his career two years ago now, I guess, and was making around the same amount that I made when I started my career, adjusting for inflation. So I started as a financial analyst at a Fortune 500 company and Harold is a rocket scientist at a, at Lockheed Martin, right. And he's thinking, ah, should I house hack and go on entrepreneurship and all those kinds of things. And, and the answer is, heck no. Even though Harold is accumulating cash, living frugally and all those types of things, Harold is a rocket scientist from a top University. In seven to 10 years, Harold is going to be making several hundred thousand dollars per year at least with lots of opportunity. There's every reason to believe in that. Career trajectory. My career trajectory would have been okay as a financial analyst, right? I would have, I would have climbed the ranks and maybe make, made just over $150,000 time in my career at age 35. Harold will not have that problem. If he performs, he will make a tremendous amount of money in one of the most lucrative career fields known to man. And I get this question a lot from people in the Carol and Craig situation as well. Craig was doing great. He came out of college and joined Biggerpockets there. He was an entrepreneur, entrepreneur. But he didn't have a guaranteed trajectory at Facebook or Meta or if it's the same thing or Nvidia or Google. If you're in that situation, then I think again rules don't apply. Like there's no alternative outside of what you're doing that can possibly match the opportunity at your career. And just climbing the ranks at one of these elite jobs out of college, right? It's so much income, such a clear path to the top 1% in America over of a 5, 10 year period. If you perform that, that's the obvious play right? Then, then why are you wasting your time on a duplex that's really dumpy over in this part of the city? Why are you wasting your time trying to sell winter rental gloves, which is an idea I had that was terrible when I was, you know, 23 or whatever at that point in time you're wasting your time. That's it's, the situation is different. And now you're back to paying off your debt. Just, just be like, look, the asset here is my career. I'm going to invest according to a clear tax advantaged order of operations. I'm going to invest passively and I'm going to make my career go really well. And this confuses, I think some of the folks that are early on in the journey who don't see that there's an obvious separation in their career potential. If you join Lock, Martin is a rocket scientist compared to two teachers who are going to be making a more clear career trajectory path. And again, the math changes in these situations around. So what do you think, Mindy?

[A]

I think that if Harold truly wants to house hack then he can. But that like you said, that shouldn't be his focus. Definitely not a live in flip, especially if he's DIYing the process because that's just that takes away your focus from your main income source. People who house hack that can be their main income source, that can be a huge chunk towards their income. But if he's going to have a multiple six figure salary very near future, then wasting your mental space on these extraneous endeavors isn't the right choice.

[B]

I think that's the challenge is, is there's some situations that seem very obvious to me as a 35 year old who's met with a lot of these kind of like very ambitious 20 somethings because I set for life in there and you're like, okay, well obviously you should be house hacking and doing these things. These are great moves you're going to do really well. That will diversify your income streams away from your career and allow you to be an entrepreneur and go on to be very successful at some point. And then there's the situation of like, well, you have one of the best jobs you ever got to see coming out of college here and like the opportunities available in entrepreneurship will just never map to that the same way unless you go and build one of these huge alternative investment banking firms or whatever, which still probably depends on you building up enough experience to be respected in connections in the field that you've chosen over a five to ten year period. And it's just so much higher odds and potentially higher quality of life for some of those folks to achieve financial freedom that way. Again, that's what I'm talking about here. And for those people, I think the answer is pay off your debt, don't invest in all these alternatives because it's going to be completely irrelevant to the outcome 10 years from now, which will be mostly predicated on your income generation.

[A]

So Scott, once you have decided to pay off your debt, what are you doing?

[B]

If I'm committed to paying off debt, I think that the two schools of thought are going to be the avalanche and the snowball Right. The avalanche being where we pay off the highest interest rate debt first and the snowball where we paying, we're paying off the lowest balance debt first. And I think that there's kind of two scenarios here. One is, let's take Carol's situation. Carol does not have a debt debt problem. Right. The debt is a problem. But. But it's not like Carol is an Iris is a track record of racking up debt, not paying attention to her situation or making large amounts of financial mistakes. In a general sense. Carol has student loan debt and she needed a car and she got low interest rate loan debt. She probably has good, good credit score, whatever. In this scenario, I'm a big proponent of the avalanche method. We have a 7 and a half percent interest rate on these student loans and we have a 3.99% rate on the car loan. I'm paying off the student loans even though the balance is larger. That's just good financial math. If we were talking about a situation where someone had a couple hundred thousand dollars in debt with Carol's income, and that was spread across credit cards and parking tickets and medical debt and student loans and car loans, now we have what I would want to call more of a debt problem. Either through bad luck or financial mismanagement, we've accumulated a large number of debts and held them for a long period of time. And that is not a mathematical problem anymore. It's a psychological problem. This is when you go to Dave Ramsey and you use the snowball method and you attack that debt as a first priority and you're not really doing investment analysis math behind the decision. What do you think?

[A]

I understand both schools of thought. The debt avalanche is you're paying off the highest interest rate first. The debt snowball is you're paying off the lowest amount first and getting that psychological win to continue going because it's difficult to tackle the biggest amount of debt and you never really see it changing. You could get this mentality of, ugh, why bother? I guess I'll just always be in debt forever. I have my own that I have called cleverly the Mindy method, where you make two lists. Your first list is your debts in order of the smallest amount owed to the largest amount owed. So the debt snowball. And then the second one is your debts in the order of the highest interest rate to the lowest interest rate. And then you start with one or the other, it doesn't matter. You tackle the top debt while paying the minimums on all the rest. And then you flip over to the other side. So if you start on debt Avalanche, then you flip over to the debt snowball and pay that top one off as aggressively as possible. And then you go back. So you're getting the, the mathematical win of paying off your highest interest rate while getting the psychological win to keep going of paying off your lowest debt amount. You see these wins you've knocked off now you've knocked off two, and then you can go back to the other one. Eventually you'll get to zero debt. But if you strug with staying on course, and you know, I don't really see any dent that I'm making in this debt, then the Mindy method is.

[B]

A nice hybrid to put that into Carol's context. Right. Let's say that Carol's student loans at 7 and a half percent, $60,000 balance, and she had a car loan of $30,000 at 7%, just, just 500 basis points lower. Then I'd be tempted to pay off the car loan first because it's so close in interest rates that we were beginning to blend a little bit of psychology and math in that situation. And I'd be tempted to pay it off the smaller balance debt off, that's only slightly lower interest rate.

[A]

Either way, whatever you're doing to pay off your debt is the best choice for you. Just again, make sure it's intentional, it's not just haphazard. And there are some people who absolutely cannot handle having any debt at all. And there are some people who are completely fine with it, knowing that they're using it as a tool of some sort. So Craig Kerlop, you can hear his episode where he talks about all of this in his real life story is episode 35. But Craig Kerlop, he used his debt instead of paying it off. He used that money in a different way, much like we suggested to the fictitious Craig here. But there are people who just cannot fathom the idea of having debt. And if that is where you are, then absolutely debt. Give yourself some mental space and start paying down your debt. The math doesn't matter if you can't sleep.

[B]

I completely agree with that. If, if, if there's a psychological factor behind this that could potentially trump all of the math and the analysis, you know, around what these interest rates talk about and you just pay off your debt if that's you. I think that a fire like a healthy attitude towards debt in the context of the financial independence. Retire early. The fire journey is to use debt as a tool in the early days of the fire journey. And I'M a big proponent of going hardcore for the first three to five years. I think that there's a tendency in the fire community to go too hard, too long and death march at defy once even after millions of dollars have been accumulated. But I think that there's also a forgetfulness of how important it is to get that snowball rolling early in life and how hard it is to get that rolling and the rewards that compound forever after that. So I think that is important and I think during that period, using debt as a tool is great. One factor to watch out for is look, if I'm house hacking at 23 and I'm making $60,000 a year and getting 250,000 in debt, or making $85,000 a year and get 300 some odd thousand dollars in debt. Debt's an all in bet and it's a calculated risk, but it's not really more risky than your peer who's buying a house that does not have tenants that could potentially help out with the mortgage. Once you rack up $3 million in debt and you're making 200 grand in your salary, now, all of a sudden you're dependent on your portfolio and your portfolio can work against you real fast in the market. The great thing about real estate is there's nothing to do about the prices. Once you put your property to highest and best use, you keep it occupied. Nothing you do, it just goes up or goes down with the market. And long term, that's a great feature of real estate. And every couple years, every, every once in a while, the market's going to go down. And if your position is so much larger than your other abilities to produce income, you're going to be at the mercy of the market in there. It doesn't matter how smart you think you are at that point in time. So I think there's a healthy dichotomy of I'm going to use debt as a tool, but I'm also going to be respectful and fear the market to a certain extent, have a healthy fear of the market and that debt at a certain point, when it becomes clear, I'm going to approach my goals. So I think that that's a dichotomy that I would encourage folks to adopt there because, because you keep taking on debt forever, you could build a huge net worth and it's all for nothing if it goes to zero.

[A]

Okay. I do feel like your real estate scenario is a little oversimplified. You are of course ignoring repairs and replacement on big systems and capex and just in general, you are making it very simple and I can hear people yelling. Yeah, but what about this? What about that? You said keep it occupied. Sometimes your rent goes down because the market shifts. So it's not always roses and rainbows. But everything else you said I agree with.

[B]

Well, my apologies. My intent was to communicate exactly what you just said. So thank you. That, that, that is the point.

[A]

Right.

[B]

One of the great thing about real estate is that long term appreciation and long term income growth is primarily driven by inflation in your local market. Right. You can do things to keep your property in good condition or whatever, but you like you will have those cash flow hits. Yes. And you will have periods of pullback and if you're highly levered and forced to sell in those periods of pullback, which you always are. Right. Down environments is when rent stops coming in, when the tenants have relative power in the relationship and begin to treat the property worse, causing more repairs and when property prices pull back and when interest rates go up. Right. It all hits at once in those environments or it tends to over the, over the years and it gets harder to borrow. And that's what you have to fear as a real estate investor and be very respectful of. It's easy to forget that I think if you're investing in periods like 2019 through 2021. And it's very easy to remember that here in 2025.

[A]

Yes, it's. What is it? Hindsight is 20 20.

[B]

Yeah. So again, the healthy, healthy, healthy relationship with debt on the fire journey is again, to put a bow on it is going to be, yes, I may be willing to use debt, especially if I'm spending much less than I earn and that can propel me forward on my fire journey. And I'm not going to just continuously maintain high leverage in perpetuity because you know that that is a high probability of going BK at some point in time, at some point you begin the deleveraging process. As you transition and you get closer to your goals, that's a more healthy relationship. And many people can't stop going after it. And I think that they're going to get a wake up call at some point.

[A]

I agree, Scott, absolutely agree. The debt can be a tool, but you have to use it strategically. You put thought into it just like anything else. Don't just blindly follow what some yahoo on the Internet says. Do your research, put your thought into it. Why are you using this debt? How are you going to use this debt? What is your plan, you know, down the road? What is your plan for the payoff, et cetera, et cetera.

[B]

Absolutely.

[A]

All right, Scott, I think this was a super fun discussion. Should we get out of here?

[B]

Let's do it.

[A]

That wraps up this episode of the Bigger Pockets Money podcast. He is Scott Trench. I am Mindy Jensen saying gotta go ufo, and we would love to hear your comments below. Ooh, that rhyme, too.