How to Build Wealth While Paying Off Loans – Smart Strategies for 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.

Set Clear Financial Goals That Balance Debt and Wealth Building

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.

How to Define Short-Term vs Long-Term Goals

Importance of Prioritising High-Interest Debt While Still Planning for the Future

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 Example for Someone with Student or Personal Loans

SMART goals help you stay focused. Let’s say you are 26, working in Hyderabad, and have a student loan of ₹3,00,000.

1. Specific
   Goal: “I want to repay my student loan and save ₹50,000 for my sister’s wedding.”
   You now know the exact numbers you are working toward.
   
   
2. Measurable
   Break your goals into monthly parts.
   Loan repayment target: ₹3,00,000 in 3 years = ₹8,300 per month
   Savings target: ₹50,000 in 12 months = ₹4,200 per month
   
   
3. Achievable
   If you earn ₹45,000/month, after rent and food, plan a budget where you can manage ₹12,500 per month for loans and savings. It’s tight, but doable.
   
   
4. Relevant
   Paying your loan will improve your credit score, and saving for your sister’s wedding shows emotional planning, both meaningful goals.
   
   
5. Time-bound
   Set clear deadlines:
   “Clear my student loan by March 2028 and save ₹50,000 by March 2026.”

How to Allocate Money for Both Payments and Progress

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.

• Use 50% of your income for needs (EMIs, rent, food).
   
• Use 30% for wants (eating out, Netflix, small trips).
   
• Use 20% for savings and investments. If you can’t manage 20%, start with 10% and increase slowly.
  
  
• Try apps like Walnut, Money Manager, or ET Money to track your spending.
  
  
• Set auto-debit for SIPs or RDs so you don’t skip saving.

When It’s Smarter to Hold On to the Mortgage

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.

Make Your Money Work: Start Small with Investments

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.

Low-Barrier Options to Start Investing Even While Repaying Loans

These tools are easy to use; most are available on UPI-friendly apps. You just need to open an account and start.

Importance of Compound Interest and Time in the Market

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.

How to Invest with Just ₹500 or ₹50/month

• Use apps like ET Money, Zerodha Coin, or Paytm Money.
  
  
• Look for mutual funds with direct plans and no lock-in.
  
  
• Start with Index Funds – they follow Nifty or Sensex and cost less.
  
  
• Use auto-debit to keep it consistent.
  
  
• Don’t skip months, small amounts build strong habits.

Increase Income to Speed Up Both Goals

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.

Ideas for Side Hustles, Freelance Gigs, or Monetising Skills

Even working 4 hours over the weekend can add value to your income.

Using Windfalls and Bonuses Wisely, Splitting Between Debt and Wealth

Got a bonus of ₹1,00,000 from your company?
 

 Use the 50:50 rule,

• ₹50,000 to pay off high-interest debt
• ₹50,000 into mutual funds, PPF, or an emergency fund

This way, you lower your future burden and grow your money side-by-side.

Passive Income Sources: Start Now, Grow Later

Passive income means money you earn without active work. You don’t need huge capital. Start small:

• Create a YouTube channel or blog (ads bring ₹2,000–₹10,000/month once it grows)
  
  
• Rent your extra parking space or storage (₹1,000–₹3,000/month)
  
  
• Invest in REITs (Real Estate Investment Trusts) with just ₹1,000 monthly
  
  
• Write an eBook or digital course
  
  
• Buy dividend-paying stocks

These don’t give quick returns, but in 2–3 years, they create steady cash flow.

Use Smart Debt Strategies to Free Up Cash

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

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:

• Pay full amount or at least more than minimum
• Avoid unnecessary card usage
• Convert high bills into EMIs if needed (but check the fee)

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.

Conclusion

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.

FAQs

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.

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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?