Author
LoansJagat Team
Read Time
10 Min
15 May 2025
Is it possible to save money while paying off a big loan? Amit, a young professional from Mumbai, often asked himself this. Like many others, he was paying ₹30,000 monthly towards his student loan and still hoped to grow his savings and invest for the future.
This is a common situation for many in India today. As of June 2024, household debt touched 42.9% of the country’s GDP, primarily due to more people borrowing. Still, India’s savings rate stands at 30.2%, higher than the world average of 28.2%.
This shows that, with smart planning, it’s very possible to repay debt and grow wealth simultaneously. Let’s look at some simple, practical steps that can help people like Amit do both.
Before building wealth while paying off loans, you must know your goal. It’s like driving; you must know your destination before choosing the best route.
Most people focus only on paying off their loans but forget about saving or investing for future needs like retirement, buying a home, or even taking a break from work.
The key is to balance both short-term and long-term goals. Short-term goals usually focus on repaying loans and avoiding late fees. Long-term goals are about creating financial freedom, building savings, investing, and growing your money. You don’t have to pick one; you just need to plan smartly.
Type of Goal | Timeframe | Example | Focus Area |
Short-Term Goal | 6 months – 2 years | Clear credit card loan of ₹75,000 | Debt repayment |
Mid-Term Goal | 2 – 5 years | Build an emergency fund of ₹1,50,000 | Safety net |
Long-Term Goal | 5+ years | Invest for ₹20,00,000 retirement fund | Wealth creation |
Credit card and personal loans often have interest rates as high as 30% per year. That means if you owe ₹1,00,000, you could pay ₹30,000 in interest. This is why high-interest loans must be cleared first.
But that doesn't mean you stop saving. Even if you save just ₹2,000 each month in a mutual fund or recurring deposit, it builds the habit. By paying off high-interest debt and saving small amounts, you move forward without feeling stuck.
SMART goals help you stay focused. Let’s say you are 26, working in Hyderabad, and have a student loan of ₹3,00,000.
Once your goals are clear, your next job is to plan your monthly money flow. A good budget helps you avoid stress, gives you control, and shows you where your money goes. But here’s the trick, don’t just make a budget for paying loans. Add wealth-building in it, too.
A popular method is the 50/30/20 rule. This rule helps you balance your money between needs, wants, and savings, even when you have loans.
Many people feel they must clear their home loan before doing anything else. But that’s not always smart. Holding on to your loan is sometimes better than rushing to close it.
Here’s when:
1. Low Fixed Interest Rate
If your home loan is at 7% or less, that’s lower than many investment returns. Instead of prepaying the loan, invest in a mutual fund with a 10–12% annual return. You earn more than what you save by closing the loan early.
2. You Can Earn More by Investing Elsewhere
Let’s say you have ₹5,00,000 in hand. If you use it to prepay your ₹25,00,000 loan, you reduce some EMIs. But if you invest the ₹5,00,000 in an index fund for 10 years, and it grows at 11% annually, you’ll end up with more than ₹14,00,000, that’s real wealth.
3. You’re Eligible for Significant Tax Deductions
Under Section 80C, you can claim up to ₹1,50,000 on principal repayment. Under Section 24, you can claim up to ₹2,00,000 on interest. If you close the loan early, you miss out on these benefits.
4. You Need Liquidity for Other Financial Goals
Maybe you plan for your child’s college in 3 years or want to start a business. Keeping cash handy is better than locking it all in home loan repayment. You can pay your EMI slowly and use your savings where it gives you more value.
Many people think they need to be debt-free before they invest. But the truth is, waiting too long to invest means missing out on growth. Even if you have loans, you can start with small steps. A ₹500 SIP every month might not feel like much, but over time, it builds into a large amount due to the power of compounding.
You don’t need lakhs to begin. Start where you are, while paying EMIs, and let your money do its job quietly in the background.
Investment Option | Monthly Starting Amount | Risk Level | Lock-in Period |
SIP in Mutual Funds | ₹500 | Medium | No lock-in (in most funds) |
ETFs (Exchange-Traded Funds) | ₹1,000 | Low to Medium | No lock-in |
Robo-Advisors (like Groww, Zerodha) | ₹500 | Varies | No lock-in |
These tools are easy to use; most are available on UPI-friendly apps. You just need to open an account and start.
Let’s say you invest ₹1,000 per month for 10 years at 12% annual return. You’ll end up with ₹2,32,339, out of which ₹1,12,339 is just interest earned. If you start late, say after 5 years, you miss out on this extra amount.
Ravi, a 25-year-old from Pune, started a SIP of ₹1,500 monthly while paying his car loan. At 35, his SIP grew to over ₹3,00,000, even though he didn’t raise the amount.
Paying off debt and building wealth gets faster if you have more income. You don’t always need to wait for a raise, you can create your own second income. Many people today freelance, teach online, or sell products on Instagram. Every extra ₹1,000 you earn can help clear debt or boost savings.
Skill/Interest | Side Hustle Idea | Avg Monthly Earning |
Good at English | Online tutoring (e.g. Vedantu) | ₹5,000 – ₹15,000 |
Design/Art | Freelance on Fiverr/Upwork | ₹7,000 – ₹20,000 |
Baking or Cooking | Instagram orders | ₹3,000 – ₹10,000 |
Driving or Delivery | Part-time gig work | ₹4,000 – ₹12,000 |
Even working 4 hours over the weekend can add value to your income.
Got a bonus of ₹1,00,000 from your company?
Use the 50:50 rule,
This way, you lower your future burden and grow your money side-by-side.
Passive income means money you earn without active work. You don’t need huge capital. Start small:
These don’t give quick returns, but in 2–3 years, they create steady cash flow.
Many people feel stuck because their EMIs take up most of their salary. But if you use the right debt strategy, you can free up cash and feel less pressure. These methods help you pay faster without feeling drained.
1. Debt Snowball vs Avalanche Method for Faster Payoff
Method | How It Works | Best For |
Snowball | Pay smallest loan first, then roll over | People who want quick wins |
Avalanche | Pay highest interest loan first | People who want to save more |
For example, if you have a ₹10,000 credit card bill at 36% interest and a ₹2,00,000 personal loan at 11%, Avalanche method saves you more money in the long run.
2. Refinancing or Consolidating Loans to Reduce Interest
Let’s say you have three loans with rates of 14%, 11%, and 13%. You can combine them into one loan at 10% from a bank or NBFC. This is called debt consolidation.
Many banks now offer personal loan takeovers. This reduces EMI and interest. Also, you may get lower rates if you have a better credit score now.
3. Avoiding Minimum Payments Trap, What to Do Instead
Paying just the minimum due on your credit card (₹2,000 on a ₹20,000 bill) means the rest keeps building interest. You’ll never finish the full amount. Always try to:
4. Use EMI-Free Months or Extra Salary to Clear Faster
If your company gives Diwali bonuses or March incentives, don’t use it for shopping. Use it to pay extra EMI. Many loans also have one EMI-free month per year, use that month’s EMI amount to pay more on another high-interest loan.
You don’t need to wait until your loans are over to build wealth. As you’ve seen, even with debt, you can save, invest, and grow your money. You need to balance, set smart goals, budget wisely, use every extra rupee well, and make money work through small investments. Even if it’s ₹500 SIPs or a weekend side hustle, every step counts.
Like Amit from Mumbai, you can move from loan pressure to financial freedom, one smart step at a time. Stay patient and consistent, and you’ll see results.
1. Can I invest while still repaying a loan?
Yes, start small. Even ₹500 per month in SIPs can help grow your money over time.
2. Which loan should I repay first?
Clear high-interest loans like credit cards first. If you want to save more on interest, use the avalanche method.
3. What if I don’t have enough money to save every month?
Start with any small amount, ₹100 or ₹200. It builds the habit and grows over time.
4. Is it smart to close a home loan early?
Not always. If your loan interest is low and you get tax benefits, you can invest the extra money instead.
5. How can I earn extra money while working full-time?
Try weekend side gigs like tutoring, freelance work, or selling online. Even 2–3 hours a week can help.
About the Author
LoansJagat Team
We are a team of writers, editors, and proofreaders with 15+ years of experience in the finance field. We are your personal finance gurus! But, we will explain everything in simplified language. Our aim is to make personal and business finance easier for you. While we help you upgrade your financial knowledge, why don't you read some of our blogs?
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