You definitely need to pay off any remaining balance to do a carrier upgrade and get the new $1k credit (over 36 months, guh).
I'm curious about upgrading directly with Apple as I am moving from a 12pro with around $250 left on the payment plan. If I take the $430 in Apple trade in and buy outright/unlocked, from what I understand, I used to be able to swap sims with the old phone and continue to receive the remaining $250 in credits from ATT since it's tied to the line, not the device. I'm unsure if that holds true in an eSim world? Apple certainly isn't going to care if I'm upgrading via trade in for an unlocked phone?
I typically keep phones for two years so I would only get roughly $650 of the ATT upgrade benefit, minus the $250 I would need to pay to upgrade. It seems like taking the trade in from Apple and hoping I can continue to get the credits from ATT for the remainder of my contract is the better approach? Plus it's unlocked which helps with international roaming, etc...