India’s household debt-to-GDP jumped from 36.6 per cent in 2021 to 42.9 per cent in 2024.
Avalanche method clears the highest-interest debt first, reducing total interest costs.
Snowball method targets the smallest loan first for faster psychological wins.
Independence Day 2025: From EMIs To Freedom, Smart Ways To Slash Your Debt
When debt seems a burden, a disciplined approach can help you pay it back
Summary
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Summary
Household debt in India has increased significantly in the years following the pandemic. It rose from 36.6 per cent of Gross Domestic Product (GDP) in June 2021 to 40.2 per cent by December 2023 and further to 42.9 per cent as of June 2024.
While these are statistics, in reality, if not managed well, debt can put your finances under stress. Things have gotten worse because debt is now easily available, and many people tend to buy expensive gadgets like iPhones on equated monthly instalments (EMIs). If you have a home loan EMI, further EMIs can make things tough. In fact, if trapped in debt, life can become miserable.
On Independence Day, we look at how you can free yourself from the burden of debt.
Avalanche Method: Pay The Debt With The Highest Interest First
In this, you list all your debts and find out the debts with the highest interest rates. Credit card debt and personal loan EMIs would be the ones for which you are paying the maximum interest. Pay extra towards the debt every month. If you have a lump sum, you can pay towards the debt or close it, depending on foreclosure charges. Once a debt is cleared, move to the debt with the next highest interest.
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Let us say you have three debts: Rs 40,000 credit card at 25 per cent interest, a Rs 80,000 personal loan at 15 per cent, and a Rs 2,50,000 home loan at eight per cent. With the avalanche method, you will pay the credit card debt with any extra money you have. Once it is fully paid, move on to the personal loan. Once the personal loan is cleared, all your extra funds should go to the you target the credit card first, paying its minimum plus any extra money you can. Once it’s fully paid, you move that extra payment to the personal loan, while still paying minimums on the home loan. After the personal loan clears, all extra funds go to the home loan. This approach reduces total interest and helps you become debt-free faster.
Debt Snowball: Pay The Smallest Loan First
“Here, you pay the debt with the smallest balance first. This would mean you have one less debt to pay off, and you are more debt-free, even if they have a lower interest rate. The avalanche method gives you a psychological boost on your journey to being debt-free,” says AK Narayanan, CEO, AK Narayan Associates, a financial planning firm.
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Whatever method you choose, when debt seems a burden, a disciplined approach can help you pay it back. In such a situation, you need to control your expenses and ensure that you do not take up any extra debt.
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