In most Indian homes, debt is emotional.

A home loan is considered “good debt,” gold loans feel safe, education loans are justified, and credit cards are treated as short-term convenience. Yet, quietly, high-interest debt has become one of the biggest wealth leakages for Indian families.

With interest rates staying elevated and discussions around future rate cuts in India, this is an ideal time to pause and rework how families borrow, repay, and manage credit.

1. Understanding the True Cost of Debt in Indian Households

Most families focus on the EMI, not the interest rate or tenure.

High-cost debt in India often includes:

• Credit cards (36–48% annualised)

• Personal loans (12–24%)

• App-based instant loans and BNPL products

• Gold loans with frequent renewals

The first step is simple:

• List all loans and cards

• Note interest rates, outstanding balances, and EMIs

• Separate productive debt from consumption-driven debt

This exercise alone often changes behaviour.

2. A Realistic Indian Family Case Study

The Sharma Family (Names Changed) - who we engaged with recently

Profile

• Barun (42): Salaried professional in a private company

• Neha (38): Freelance designer with variable income

• Two school-going children

• Monthly household income:  is ₹1.7 lakh

Existing Loans

Despite earning well, the family constantly felt “cash-strapped.”

3. Choosing the Right Repayment Strategy

After mapping their loans, the Sharma's realised something important:
Their credit card and personal loan EMIs were consuming surplus cash that could otherwise go into savings.

They chose a hybrid approach:

Step 1: Debt Avalanche for High-Interest Loans

• Focused aggressively on clearing credit card balances first

• Stopped revolving credit; paid more than minimum due

• Used annual bonus partially to reduce card debt

Result:
Credit card debt cleared in 8 months, saving nearly ₹1.1 lakh in future interest.

Step 2: Debt Snowball for Motivation

Once cards were closed:

• Personal loan became the next target

• Increased EMI after credit card closure

• Cleared the personal loan 14 months earlier than scheduled

Result:
Monthly cash flow improved by ₹22,000.

4. Credit Score: An Invisible Win

As a side effect of disciplined repayment:

• Credit utilisation dropped below 30%

• All payments were on time

• Credit score improved from 712 to 782

This gave the family leverage.

When they approached their bank:

• They negotiated a home loan rate reduction

• Chose to keep EMI the same and reduce tenure instead

Outcome:
Home loan tenure reduced by nearly 3 years.

5. Reviewing Borrowing Before Interest Rates Fall

Instead of taking a tempting home loan top-up, the family asked:

• Do we need more debt, or better control?

• Will lower rates improve cash flow or lifestyle inflation?

Their decision:

• No new loans

• Channel surplus into emergency fund and long-term investments

• Keep borrowing strictly goal-based

This restraint was the turning point.

6. The Bigger Lesson for Indian Families

The Sharma family didn’t increase income dramatically.
They didn’t chase market returns.

They simply:

• Prioritised high-interest debt

• Improved credit discipline

• Used falling rates to exit faster, not borrow more

Within three years:

• Stress reduced

• Savings rate improved

• Financial conversations at home became calmer

For Indian households, debt management isn’t about avoiding loans, it’s about respecting them.

Well-managed debt supports growth. Poorly managed debt quietly erodes wealth.

As interest rates peak and potentially turn, this is the moment for families to:

• Clean up balance sheets

• Strengthen credit profiles

• Borrow only with intention

Because in India, true financial stability is built not by how much you earn, but by how wisely you manage what you owe.