In 2023, amidst the busy streets of Mumbai, Priya Sharma faced a challenge: a debt of ₹20,00,000. This weight affected her daily life, a burden many Indian households understand all too well.

Recent reports highlight that household debt in India has risen to 42.9% of the GDP as of June 2024, primarily due to increased borrowing.

For Priya, this debt wasn't accumulated through lavish spending but through necessary expenses like her children's education, medical bills, and supporting her extended family. Determined to regain financial stability, she started doing disciplined budgeting, wise investments, and exploring additional income sources.

Priya cleared her ₹20,00,000 debt within two years, reducing her financial situation. Her story inspires, demonstrating that overcoming debt is achievable with the right strategies and determination.

Facing the Reality

The first step in clearing any debt is to face the reality of how much you owe. For many, this can be the hardest part. It’s easy to ignore those credit card bills or loan reminders, but until you know the exact amount, you won’t be able to make a proper plan.

Take Priya’s example, a 30-year-old teacher from Bengaluru. She had multiple loans:

₹5,00,000 personal loan
₹3,00,000 on her credit card
₹12,00,000 home loan

When she added everything up, Priya realised her total debt was ₹20,00,000. It was scary initially, but knowing the exact number clarified her. She could now break her debt into smaller parts and focus on one at a time.

How to calculate your total debt

List all loans: Personal loans, education loans, home loans, or car loans.
Add credit card balances: These often have the highest interest rates.
Include any unpaid EMIs: Missed payments can increase your debt due to penalties.

Once you have the full amount, write it down. This will give you a clear starting point.

Creating a Realistic Budget—and Sticking to It

After knowing your debt, the next step is to create a budget. A budget will help you control your expenses and plan your repayments.

Priya started by dividing her monthly income like this:

Monthly income: ₹50,000

Category	Amount (₹)	Percentage of Income
Rent	10,000	20%
Groceries & essentials	8,000	16%
Transportation	4,000	8%
Savings	5,000	10%
Debt repayment	18,000	36%
Miscellaneous	5,000	10%

Instead of spending on unnecessary shopping or eating out frequently, she cut down on her extra expenses. The ₹18,000 she allocated monthly for debt repayment helped her clear her debt faster.

Tips for creating a realistic budget

Track every rupee: Use an app or a simple notebook to record your spending.

Cut down unnecessary expenses: Skip the expensive coffee, limit online shopping, and look for cheaper alternatives.

Set small goals: Save ₹500 weekly from your daily expenses. Small savings add up over time.

Most importantly, stick to your budget! It's tempting to splurge occasionally, but discipline is key.

Prioritising High-Interest Debts First

All debts are not equal. Some loans have higher interest rates, meaning you’ll pay more over time if you don’t clear them early.

For instance, most credit card debts in India come with an interest rate of 30-40% per year. Compare that with a home loan interest rate of 7-9%, and it’s clear why clearing high-interest debts should be your priority.

Here’s what Priya did:

She first focused on her ₹3,00,000 credit card debt, paying ₹15,000 each month towards it.
Once that was cleared, she shifted her focus to the personal loan of ₹5,00,000.
Finally, she paid off the home loan faster by making extra payments whenever she got bonuses or incentives.

This method is known as the avalanche—paying off high-interest debts first saves more money in the long run.

Why prioritising high-interest debt works

Reduces total interest paid: You’ll save more money by clearing the most expensive loans first.

Quick motivation: As your debt reduces, you’ll feel more motivated to continue.

Improves credit score: Clearing high-interest debts first improves your credit report faster.

Read More - Paid Off ₹20 Lakh Debt in 3 Years

Increasing Income Through Side Hustles

When Priya realised her full-time job wouldn’t be enough to cover her debt and regular expenses, she turned to side hustles. The idea was simple: bring in extra income without leaving her primary job.

What did she do?

Freelancing: She used her marketing skills to offer freelance social media management for small businesses, earning an extra ₹15,000 per month.
Online Tutoring: She taught marketing basics to college students online, making ₹5,000 each month.
Weekend Baking: With a passion for baking, she started taking small weekend orders from friends and neighbours, adding ₹3,000 monthly.

How did this help?

In total, Priya was making an additional ₹23,000 each month. Over two years, this side income added up to ₹5,25,000—enough to clear nearly 25% of her total debt!

Income from Side Hustles

Side Hustle	Monthly Income (₹)	Annual Income (₹)
Freelancing	15,000	1,80,000
Online Tutoring	5,000	60,000
Weekend Baking	3,000	36,000
Total	23,000	2,76,000

Cutting Down on Non-Essential Expenses

The second pillar of Priya’s strategy was cutting down unnecessary spending. She tracked every rupee for a month and realised how small expenses added up to a large amount.

Here’s what she did:

Reduced eating out: From spending ₹5,000 a month on dining out, she brought it down to ₹1,000 by cooking at home.
Cancelled unused subscriptions: She saved ₹2,000 monthly by cancelling gym memberships and OTT platforms she rarely used.
Switched to public transport: Instead of using cabs or driving, she saved ₹3,000 a month using Mumbai’s local trains.

How much did she save?
These small sacrifices helped Priya save ₹10,000 every month. Over two years, this added up to ₹2,40,000.

Monthly Savings Breakdown

Expense Cutback	Before (₹)	After (₹)	Savings (₹)
Eating Out	5,000	1,000	4,000
Subscriptions (Gym, OTT)	2,500	500	2,000
Transport Costs	5,000	2,000	3,000
Total Savings per Month	12,500	3,500	9,000

Negotiating Lower Interest Rates with Lenders

One of Priya's most brilliant moves was negotiating lower interest rates with her lenders. High interest rates mean paying more money over time, and she knew this was a hurdle she had to cross.

Here’s how she did it:

Consolidated her debt: She combined multiple small loans into one personal loan with a lower interest rate of 11% instead of 15%.
Negotiated with her credit card company: She explained her repayment plans and requested a reduced interest rate. This brought down her rate from 18% to 12%.

Results:

This single step saved her over ₹1,00,000 in interest payments over two years.

Quick Tip:

Don’t hesitate to ask your lender for a lower rate if you have a good repayment record. You can also explore balance transfer options with other banks offering lower rates.

The Power of the Debt Snowball Method

The debt snowball method is simple but powerful. Here’s how it works:

Step 1: List all your debts from smallest to largest.
Step 2: Pay off the smallest debt first while making minimum payments on the others.
Step 3: Once the smallest debt is cleared, use that extra money to pay off the next smallest debt.

Why does it work?

The idea is that small wins give you confidence and motivation to tackle more significant debts. Each time you pay off a debt, your monthly payments increase, just like a snowball growing more prominent as it rolls.

Priya had three debts:

A credit card bill of ₹50,000 (interest rate of 18%)
A personal loan of ₹2,00,000 (interest rate of 14%)
A car loan of ₹5,00,000 (interest rate of 10%)

She started by clearing her credit card first because it was the smallest. She paid ₹10,000 extra each month on this card while making minimum payments on the other loans.

Once the credit card was paid off in 5 months, she took the ₹10,000 she used for the card and added it to her loan payments.

How Much Did She Save?

Following the snowball method, Priya cleared her credit card debt faster and saved around ₹15,000 in interest charges over two years.

Quick Tip:

The snowball method works well if you need motivation and quick wins. Start with your smallest debt—it pushes you to keep going.

Using Windfalls Wisely

A windfall is any unexpected income you receive, like a bonus, a tax refund, or even money from selling unused items. While spending this extra cash on something fun is tempting, using windfalls wisely can help clear your debt faster.

Here’s what Priya did:

She received a Diwali bonus of ₹50,000 from work. Instead of spending it all, she used ₹40,000 to clear a part of her loan and saved the remaining ₹10,000 for emergencies.
She also sold unused electronics and furniture online, earning ₹30,000, which went directly towards her car loan.

The Impact:

By using her windfalls for debt payments, Priya managed to clear ₹70,000 of her debt much faster than expected. This also reduced the interest she would have paid if she had stuck to the regular EMI schedule.

Windfall Usage Table

Source of Windfall	Amount Received (₹)	Used for Debt (₹)	Savings/Other Uses (₹)
Diwali Bonus	50,000	40,000	10,000
Selling Unused Items	30,000	30,000	0
Tax Refund	20,000	15,000	5,000
Total	1,00,000	85,000	15,000

Quick Tip:

Every time you receive extra money, consider using at least 70% of it toward debt repayment. The remaining 30% can be saved or spent on small rewards to keep you motivated.

Also Read - She Cleared ₹7L Credit Card Debt & Saved ₹2L

Automating Payments to Avoid Late Fees

Late payments come with penalties, increased interest rates, and can hurt your credit score. One of the easiest ways to avoid this is by automating your debt payments.

How does automation help?

Ensures payments are made on time
Saves you from accidental late fees
Reduces stress since you don’t have to remember due dates

Priya’s Strategy:

Priya set up automatic payments for all her loans through her bank’s online banking system. She scheduled her payments right after her salary was credited, ensuring she never missed a due date.

Results:

In two years, she avoided over ₹12,000 in late fees and penalties that she would have otherwise paid if she missed even a few payments.

Priya once forgot to pay her credit card bill on time, and the late fee was ₹1,200. After that, she automated all payments, saying, “I realised it’s better to automate and forget about it than to lose money for no reason.”

Conclusion

Clearing ₹20,00,000in two years isn’t easy, but it's possible with discipline and a solid plan. Priya’s journey teaches us that even if the debt is huge, breaking it down into smaller, manageable parts makes the task achievable.

Here are some key takeaways:

Face your debt head-on: Know exactly how much you owe.
Make a budget: Every rupee counts when you’re repaying debt.
Prioritise high-interest loans: Clear the ones with the highest rates first.
Stay disciplined: Cut unnecessary expenses and stick to your plan.

FAQs

How did Priya Sharma clear ₹20,00,000 debt in just two years?
She followed a disciplined budget, increased her income with side hustles, prioritised high-interest debt, and cut unnecessary expenses.

What budgeting method did she use?
Priya divided her income into essential categories, allocated a big portion to debt repayment, and avoided unnecessary spending.

How did she increase her income?
She took up freelancing, online tutoring, and a small baking business, earning an extra ₹23,000 per month.

What strategy helped her pay off debt faster?
She used the avalanche method to clear high-interest debts first and automated payments to avoid late fees.

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