Five Smart Strategies to come out of debt faster

Debt can weigh down even the best of financial plans. Whether it is a personal loan, credit card balance, or consumer durable EMIs — debt quietly eats into your monthly income and future savings. Getting out of debt faster is not about earning a fortune — it is about using the right techniques and mindset.

In this post, I will share five smart strategies — tailored for Indian readers — that can help you systematically clear your debt and move towards financial freedom.

Here are five smart strategies that can help you systematically clear your debt and move faster towards financial freedom:

1. Avalanche Method

The avalanche method focuses on repaying debts in order of highest interest rate first.

In India, credit card debts typically charge 36%–48% annual interest — the highest among retail loans. Personal loans can be 12%–24%, while home loans are lower.

How it works:

• Make minimum payments on all debts.
• Channel any extra money towards clearing your highest-interest debt first — such as credit card outstanding.
• Once that debt is cleared, move to the next highest-interest debt.

Example:

Priya, a 32-year-old marketing professional in Gurgaon, had:

• ₹1.2 lakh credit card debt @ 42%
• ₹3 lakh personal loan @ 15%
• ₹20 lakh home loan @ 8.5%

She used the avalanche method to clear her credit card first. In just 6 months, she saved over ₹25,000 in interest — which she then used to speed up her personal loan repayment.

 

2. Snowball Method

If motivation is your biggest challenge, the snowball method is for you.

Here, you repay debts from smallest balance to largest — regardless of interest rate.

How it works:

• List all your debts by outstanding balance.
• Pay minimum on all.
• Use extra money to clear the smallest debt first.
• Each small victory builds confidence and creates momentum.

Example:

Rohit from Mumbai was juggling:

• ₹7,000 credit card
• ₹18,000 car EMI
• ₹90,000 personal loan
• ₹2 lakh gold loan

He cleared his ₹7,000 card first, which gave him motivation to tackle the next one. In 12 months, he was debt-free.

 

3. Borrow Against Assets

Many Indians hold gold, property, PPF, or life insurance policies. You can use these as collateral to get a secured loan at much lower interest — often 9%-12% — and use this money to repay expensive debts.

How it works:

• Approach your bank for a loan against property, gold, or insurance policy.
• Use this low-interest loan to clear high-interest debt (like credit cards).
• Lower EMIs improve cash flow.

Example:

Mrs. Iyer, a Chennai-based retired teacher, had:

• ₹1.5 lakh personal loan @ 20%
• ₹1 lakh credit card debt @ 40%

She took a loan against her gold @ 10% and cleared both debts. This reduced her total EMI burden by 50%.

 

4. Focus on Earning More

Sometimes, the easiest way to clear debt faster is to boost your income — even temporarily.

How it works:

• Take freelance work or side gigs (content writing, tuition, online selling).
• Use bonuses, tax refunds, or windfalls entirely towards debt.
• Borrowing from trusted family/friends can help too — but only after a repayment plan is agreed.

Example:

Amit, an IT engineer in Bangalore, started freelancing on weekends. His extra ₹10,000/month income helped him close his car loan one year early.

 

5. Debt Consolidation & Resolution

If you have many loans/EMIs, combining them into one consolidated loan (at lower interest) helps simplify your finances.

How it works:

• Approach your bank or NBFC for a debt consolidation loan.
• One EMI = easier management, sometimes lower total interest.
• In difficult cases, negotiate a debt resolution (with your bank’s recovery department or via legal counsellors) — but this may impact your CIBIL score.

Example:

Sanjay, a businessman in Noida, consolidated his 3 personal loans (total ₹6 lakh) into one secured loan at 11%. His EMI dropped by ₹5,000/month, giving him breathing space.

 

 Real-Life Example

Ajay, a 40-year-old marketing manager from Delhi NCR, found himself with ₹3 lakh credit card debt, two personal loans, and a top-up home loan.

He followed a step-by-step approach:

• Took a loan against property to clear the card debt.
• Focused on avalanche method for personal loans.
• Used year-end bonus to close one loan.
• Took weekend consulting projects to accelerate repayment.

In 18 months, Ajay became debt-free and improved his CIBIL score from 650 to 785.

 

Tax Implications

• Personal loan or credit card debt repayment gives no tax benefit.
• Home loan (principal + interest) offers tax benefits under:
• Section 80C – principal
• Section 24(b) – interest
• Loan against life insurance or gold: No TDS, but borrower is fully responsible for repayment.
• Debt consolidation or resolution does not impact tax but may affect credit score.

 

Summary

• Debt can be overcome with the right plan
• Use avalanche for maximum savings, snowball for motivation
• Borrow against assets smartly
• Focus on increasing income, if possible
• Seek professional help without hesitation
• The faster you act, the sooner you will enjoy financial freedom

References

• Related Blogpost: What is Credit Score
• Related Blogpost: Loan against your Assets
• Related Blogpost: Credit Card Vs Debit Cards
• Related Book: From the Rat Race to Financial Freedom

Regards

Manoj Arora
Official Website