Chapter 5 of 10
How to Get Out of Debt
Snowball vs avalanche and a step-by-step payoff plan.
Suvash's credit card statement arrived on a Thursday morning. He opened it with the same energy he opens dentist bills.
₹45,000 outstanding. Interest rate: 42% per annum. Minimum payment due: ₹2,250.
He also had a ₹1,00,000 personal loan, the one he took for his laptop when he joined the Bengaluru job. That one was at 15%, with ₹8,000/month EMI. ₹65,000 still remaining.
Total debt: ₹1,10,000. Not a catastrophe by most measures. But the credit card interest rate, 42%, was quietly eating him alive.
He Googled "how to get out of debt fast" and found two strategies. Both had passionate defenders. He needed to pick one.
A structured plan for paying off multiple debts, prioritizing which to pay first based on either interest cost (avalanche method) or psychological wins (snowball method), so you eliminate debt faster and more intentionally than paying minimums.
Two Strategies, Two Different Logics
Strategy 1: The Debt Avalanche (Math-Optimal)
Pay minimums on all debts. Throw every extra rupee at the highest interest rate debt first.
Once that's cleared, roll the payment to the next highest rate. Like an avalanche, slow start, unstoppable finish.
Why it works: You minimize total interest paid. Pure mathematics.
Strategy 2: The Debt Snowball (Psychology-Optimal)
Pay minimums on all debts. Throw every extra rupee at the smallest balance debt first.
Once that's cleared, roll the payment to the next smallest. Quick wins build momentum.
Why it works: Humans aren't calculators. The emotional reward of clearing a debt keeps you going.
Suvash's Situation: Running Both Scenarios
Suvash has ₹15,000/month he can throw at debt (after essentials, savings, and family transfer). Here's what each strategy looks like:
Debts ranked by interest rate:
- Credit card: ₹45,000 at 42%, attack first
- Personal loan: ₹65,000 at 15%, maintain EMI (₹8,000/month)
Current: ₹8,000/month goes to personal loan EMI. That leaves ₹7,000 extra. Extra ₹7,000 → thrown at credit card on top of minimum payment.
Month 1: CC balance ₹45,000. Pay ₹7,000 + ₹2,250 minimum = ₹9,250. Balance after: ~₹37,325 (interest added ≈ ₹1,575)
Month 2: CC balance ~₹37,325. Pay ₹9,250. Balance: ~₹28,380
Month 3: CC balance ~₹28,380. Pay ₹9,250. Balance: ~₹19,105
Month 4: CC balance ~₹19,105. Pay ₹9,250. Balance: ~₹9,523
Month 5: CC balance ~₹9,523. Pay final balance. Credit card CLEARED.
Now: entire ₹15,000 goes to personal loan (₹8,000 existing + ₹7,000 extra). ₹65,000 personal loan clears in 4–5 more months.
Total time: ~10 months. Total interest paid: ~₹12,000–₹14,000.
Debts ranked by balance:
- Credit card: ₹45,000, attack first (also happens to be smallest by coincidence)
- Personal loan: ₹65,000, maintain EMI
In this case, since the credit card IS the smaller balance AND the higher rate, Suvash's avalanche and snowball produce the same priority order.
But imagine if he had a ₹10,000 small loan at 8% interest. The snowball would say: pay that off first. The avalanche would say: ignore it, hit the credit card at 42%.
Snowball wins psychologically, you get to say "I cleared a debt!" in month 1. But it costs more interest over time.
Verdict for Suvash: Avalanche and snowball give the same answer here. Obliterate the credit card first.
The Credit Card Interest Trap: Why 42% Is a National Emergency
Most people don't grasp what 42% annual interest means in practice.
| Balance | Rate | Minimum Payment | Time to Clear | Total Interest Paid |
|---|---|---|---|---|
| ₹45,000 | 42% p.a. | ₹2,250/month (5%) | ~3.5 years | ~₹36,000 (80% of original balance!) |
| ₹45,000 | 42% p.a. | ₹9,250/month (full attack) | ~5 months | ~₹8,000 |
| ₹45,000 | 42% p.a. | ₹15,000/month (emergency mode) | ~3.5 months | ~₹5,500 |
The minimum payment trap: if Suvash paid only minimums on his credit card, he'd spend 3.5 years paying ₹36,000 in interest on a ₹45,000 debt. He'd pay 180% of the original amount and still feel like he made no progress.
This is by design. Credit card companies count on minimum payment behaviour. Don't give them the satisfaction.
Paying the minimum on a 36–42% credit card is financial self-harm. The interest rate is so high that minimum payments barely cover the monthly interest charge. You'll be paying this debt for years and feel like you're not making progress, because you aren't. Pay as much above minimum as possible, always.
Suvash's Psychological Strategy: The Debt War Room
Suvash did something simple but powerful. He made a physical list:
Written on paper (not in a phone app, paper matters for this):
Suvash's Debt War
Debt 1: CC, ₹45,000 @ 42%, TARGET Debt 2: Personal Loan, ₹65,000 @ 15%, holding
Every month when he made his extra payment, he crossed out the old balance and wrote the new one. By Month 3, watching the credit card balance fall from ₹45,000 to ₹19,105 was more motivating than any finance influencer on Instagram.
Create a simple visual tracker, a bar that empties as you pay, a number you update monthly, a colour-coded spreadsheet. The visual progress is neurologically rewarding in a way that checking an app isn't. Your brain needs to see the debt shrinking to stay motivated.
What About Investing While Repaying Debt?
Suvash had started a ₹3,000/month SIP in a Nifty 50 fund last year. Should he pause it to attack debt faster?
The math test:
- SIP expected return: 12% CAGR
- Credit card interest: 42%
- Personal loan: 15%
When debt interest exceeds investment return, pay off debt first.
Verdict:
- Credit card at 42%: Pause the SIP temporarily and redirect to CC. The guaranteed 42% "return" from eliminating that debt beats any market return.
- Personal loan at 15%: Borderline. Once CC is clear, keeping the SIP running alongside the personal loan EMI is reasonable: the 12% SIP return vs 15% loan cost is close enough that either decision is defensible.
Suvash's call: Paused the SIP for 5 months while destroying the credit card. Restarted at ₹5,000/month (increased it as a reward for clearing the CC) once the card was zeroed.
Paying off a 42% credit card is equivalent to earning a guaranteed 42% return on that money, tax-free, risk-free. No mutual fund, no stock, no FD offers that. Debt repayment IS investing, in this context.
After Debt: Rebuilding
Suvash cleared his credit card in Month 5. Personal loan cleared in Month 10.
Month 11: Completely debt-free for the first time since Bengaluru.
What he did immediately:
- Restarted SIP at ₹8,000/month (used the freed-up ₹15,000/month budget)
- Built 3 months of emergency fund in a liquid fund
- Cut up one of his two credit cards (kept one for credit score maintenance, paid in full every month)
- Made a rule: never carry a credit card balance. If you can't pay it by month end, you can't afford it.
Key Takeaways
- Avalanche method: pay highest interest rate first: minimizes total interest paid (math-optimal)
- Snowball method: pay smallest balance first: maximizes psychological wins (behaviour-optimal)
- Credit card debt at 36–42% is your #1 financial emergency: treat it like one
- Paying only minimums on a credit card can mean paying 150–200% of the original balance over time
- Temporarily pausing SIP to clear high-interest debt (above 15%) is often the right financial decision
- After debt is cleared, redirect the freed EMI budget to savings and investments immediately
List Your Debts. Pick a Strategy. Start This Month.
Don't wait for a perfect moment. There isn't one. Write down every debt, the outstanding balance, and the interest rate.
Rank by interest rate (avalanche) or by balance (snowball). Pick one. Start throwing extra money at the top of that list.
Suvash went from ₹1,10,000 in debt to zero in 10 months. Not by earning more. By having a plan and following it.
Use the EMI Calculator to model how much faster your debt clears with extra payments.
Suvash has a credit card at 42% interest and a personal loan at 15%. He can only choose one to attack aggressively. Which should he prioritize using the avalanche method?