Chapter 5 of 10
How to Get Out of Debt
Snowball vs avalanche and a step-by-step payoff plan.
Suresh was 32 with three debts hanging over him like weights. A ₹50,000 credit card bill at 42% interest, a ₹2 lakh personal loan at 18%, and a ₹5 lakh car loan at 9.5%. Every month, he paid the minimums on all three and wondered why the balances barely moved. He felt trapped —
earning ₹70,000 a month but having nothing to show for it. His sister introduced him to a simple
concept: you don't fight all your debts at once. You pick one at a time and attack it aggressively.
That insight, plus two specific strategies called the snowball and avalanche methods, got Suresh
debt-free in 3 years.
The Two Debt Payoff Strategies
Suresh's Three Debts
- Credit Card Outstanding: ₹50,000 @ 42% interest/year
- Personal Loan: ₹2,00,000 @ 18% interest/year
- Car Loan: ₹5,00,000 @ 9.5% interest/year
- Credit card minimum: ₹2,500 (5% of balance)
- Personal loan EMI: ₹5,100
- Car loan EMI: ₹10,500
- Total minimums: ₹18,100/month
Available extra for debt payoff: Suresh cuts expenses and frees up ₹8,000/month extra. Total debt payment weapon: ₹18,100 + ₹8,000 = ₹26,100/month.
The Debt Snowball Method
Pay the smallest balance first. Once cleared, apply that payment to the next debt.
Psychologically powerful — you see debts disappearing, which keeps you motivated.
- Credit Card ₹50,000 (smallest balance) — attack first with all extra ₹8,000
- Personal Loan ₹2,00,000 — roll credit card payment + extra when card is cleared
- Car Loan ₹5,00,000 — cleared last with maximum force
- Month 1–4: Pay ₹2,500 minimum + ₹8,000 extra = ₹10,500/month toward credit card
- Month 5: Credit card paid off! ₹50,000 gone, interest stopped
- Month 5 onward: ₹10,500 (freed credit card payment) now goes to personal loan
- Personal loan payment: ₹5,100 + ₹10,500 = ₹15,600/month
- Personal loan cleared in ~15 months
- All firepower (₹26,100) against car loan — done ~14 months later
- Total time: ~33 months
The Debt Avalanche Method
Pay the highest interest rate debt first. Mathematically, this saves the most money.
In Suresh's case — credit card at 42% — the avalanche and snowball actually agree on the first target.
Here's a scenario where they differ:
- Debt A: ₹30,000 @ 15% (small balance, low rate)
- Debt B: ₹1,50,000 @ 24% (larger balance, high rate)
- Debt C: ₹4,00,000 @ 10% (largest balance, lowest rate)
Snowball order: Debt A → Debt B → Debt C (by balance size) Avalanche order: Debt B → Debt A → Debt C (by interest rate) Interest paid with Snowball: ~₹35,000 total interest Interest paid with Avalanche: ~₹27,500 total interest Avalanche saves approximately ₹7,500 in this scenario — but requires discipline to ignore the smaller Debt A and tackle Debt B's larger balance first.
Snowball vs Avalanche: Which One Should You Choose?
| Factor | Debt Snowball | Debt Avalanche |
|---|---|---|
| Total interest paid | Higher — not mathematically optimal | Lower — mathematically optimal |
| Speed to payoff | Similar overall time | Similar or slightly faster |
| Psychological benefit | High — quick wins keep you motivated | Lower — first win may take longer |
| Best for | People who need motivation to stay on track | Disciplined people focused on numbers |
| Risk of quitting | Lower — early victories build habit | Higher — can feel slow at the start |
| Recommended if... | You have many small debts or struggle with consistency | You are numbers-driven and already committed |
While paying off credit card debt, stop using the card entirely. Put it in a zip-lock bag filled with water and put it in your freezer. This sounds extreme, but it works — the physical friction of defrosting creates a pause before impulsive spending. The moment you add new charges to a card you're paying off, you create a treadmill you can't escape. Zero new credit card spending until the balance is zero.
Debt Consolidation — Can It Help?
If you have multiple high-interest debts, consolidating them into one lower-interest loan
can save significant money. Common options in India:
- Balance Transfer Credit Card — move high-interest credit card debt to a card offering 0% for 3–6 months (watch transfer fees)
- Personal Loan for Consolidation — take a 12–15% personal loan to pay off 40%+ credit card debt
- Home Loan Top-Up — if you own a home, a top-up loan at 9–10% can clear personal loans at 18–24%
- Gold Loan — use gold jewellery as collateral for a 9–12% loan to repay more expensive debts
If a banker suggests "settling" your loan for a reduced amount (e.g., pay ₹1 lakh against a ₹2 lakh loan), understand the consequences: the account is marked "settled" or "written-off" on your credit report, and this severely damages your CIBIL score for 7 years. Future loans become nearly impossible or prohibitively expensive. Only consider settlement as an absolute last resort when bankruptcy is the alternative — attempt a full payment plan first.
You have two debts: Credit Card ₹20,000 @ 36% interest and Personal Loan ₹80,000 @ 16% interest. Which method saves you the MOST money in interest?
Key Takeaways
- The Debt Avalanche (highest interest first) saves the most money mathematically; the Debt Snowball (smallest balance first) provides psychological wins that keep most people on track — choose based on your personality.
- The key to either strategy is freeing up extra money each month and applying it all to one target debt while paying minimums on the rest — scattered small payments achieve nothing.
- Stop using credit cards the moment you start a payoff plan — adding new charges undermines every rupee you put in.
- Bank loan settlement permanently damages your CIBIL score for 7 years — exhaust every other option before considering it.