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Reader’s question: I'm paying Rs 40,000 a month towards home, car and credit card EMIs. How should I tackle my debt? — Anonymous
When you have multiple loans, the goal is not merely to keep up with EMIs but to become debt-free as efficiently as possible. A good rule is to eliminate the costliest debt first while continuing to make minimum payments on the others.
Start with the credit card loan. This is usually the most expensive borrowing, with high interest rates. Such debt compounds quickly and can trap borrowers for years. Direct every spare rupee towards closing this loan. If necessary, temporarily pause investments beyond your emergency fund contributions or find additional income sources to accelerate repayment.
Once the credit card debt is cleared, shift your attention to the car loan. A car is a depreciating asset. Unlike a house, its value falls every year while interest continues to accrue on the loan. Prepaying the car loan after the credit card debt is gone can improve your monthly cash flow and reduce the total interest paid.
The home loan should generally be the last loan you rush to repay. Home loans usually carry lower interest rates among retail loans and are backed by an asset that has the potential to appreciate over time. They also come with tax benefits, making them relatively efficient debt.
This approach is often called the 'debt avalanche' method: pay off the highest-interest loan first and work your way down. It may not be emotionally satisfying in the short term, but mathematically it minimises the total interest outgo and helps you become debt-free sooner.
One caveat: while aggressively repaying debt, make sure you maintain an emergency fund and adequate health and term insurance cover. The last thing you want is to clear debt only to take on new high-cost borrowing when an unexpected expense arises.
Also read: Should you prepay your home loan?
This article was originally published on September 30, 2024, and last updated on July 09, 2026.
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