Your guide to tackling debt smarter and faster in 2025

According to the Reserve Bank of India’s June 2024 Financial Stability Report, this rise is fuelled more by an increase in the number of borrowers than by larger loan sizes, highlighting how many households are struggling to balance their budgets or build adequate savings.

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Consumer loans now account for over 40% of household debt, reflecting a growing reliance on credit to bridge financial gaps. Whether it’s credit card bills, personal loans, or other borrowings, managing debt effectively has become critical for financial stability and peace of mind. 

With the start of a new year offering a fresh slate, now is the perfect time to take charge of your finances with a practical three-step plan to reduce debt and move closer to financial independence.

A practical three-step plan can help individuals regain control, reduce financial stress, and accelerate their journey toward debt-free living.

Step #1: Get organized and create a repayment plan

The first step is to organize your debts and develop a clear repayment strategy. Begin by listing all outstanding debts, including the loan amount, interest rate, and tenure for each. This provides a comprehensive picture of your financial situation and helps prioritize repayment efforts.

Next, choose a repayment method that suits your circumstances:

The Snowball Method: Focus on paying off the smallest debt first while making minimum payments on others. This approach offers quick wins, building momentum and confidence to tackle larger debts. However, it may lead to higher overall interest payments.

The Avalanche Method: Prioritize the debt with the highest interest rate to save on interest costs over time. While this is the more cost-effective approach, it can take longer to see progress, making it harder to stay motivated.

Step #2: Free up money for debt repayment

There’s no magic pill for paying off debt—it requires freeing up more money. This means cutting expenses, boosting income, or ideally, both. Start by reviewing your monthly spending to identify non-essential costs that can be reduced or eliminated, such as dining out, streaming subscriptions, or impulse purchases. 

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Small adjustments like negotiating lower premiums for insurance or mobile plans and switching to cost-effective alternatives can also make a difference.

Adopting frugal habits, such as cooking at home, buying in bulk, or using public transportation, can significantly improve your monthly budget. On the income side, explore opportunities for a side hustle, like freelancing, tutoring, or selling unused items, to generate extra cash. Not only does this supplement your income, but it also keeps you focused on your financial goals.

By maximizing your cash flow and staying proactive, you can accelerate debt repayment and reach your financial milestones faster.

Step #3: Stay committed and avoid falling back into debt

The final step is to stay disciplined and focused on your goal of becoming debt-free. Start by building an emergency fund to cover unexpected expenses, reducing the need to rely on credit when surprises arise. Begin with small contributions and gradually grow the fund as you pay down your debts. This safety net provides financial security and peace of mind.

To avoid the temptation of accumulating new debt, limit credit card usage and rely on cash or a debit card for everyday purchases. Planning ahead—such as creating a shopping list—can curb impulse spending and help you stick to your budget. Celebrate milestones along the way, like fully paying off a debt or hitting a repayment goal, to stay motivated and reinforce good financial habits.

Regularly review your progress and adjust as needed. For example, if your income increases or expenses decrease, channel the additional funds toward debt repayment to speed up the process. Consistency and discipline are essential to staying on track and avoiding setbacks, ensuring you achieve your debt-free goals with confidence.

Paying off debt faster requires a mix of strategic planning, financial discipline, and a proactive approach to money management. By crafting a clear repayment plan, reducing unnecessary expenses, increasing income, and maintaining unwavering commitment, you can take control of your finances and achieve financial freedom sooner than expected. 

Also read | Drowning in debt at 32, confessions of a failed options trader

Every small step makes a difference, and consistency remains the cornerstone of a debt-free future.

Abhishek Kumar is a Sebi-registered investment advisor, founder and chief investment advisor at SahajMoney.