How I Became Debt Free? How You too Could Get out of Debt?

How to Pay Off Debt and Become Debt Free?

I have seen friends and relatives struggle with debt for years. Some were only trying to manage their monthly expenses, while others kept borrowing to repay what they had borrowed earlier. Once debt gets out of control, it can affect almost every part of your life. It can take away your peace of mind and put enormous strain on your family life.

I know what that feels like because I have been there myself. In my twenties, I got into debt. I had not fully understood what I was getting myself into, and before I knew it, the debt had become a problem that followed me everywhere. It was not just the money I owed. It was the constant worry about how I was going to manage the next payment, the pressure on my finances, and the feeling that a part of my future income already belonged to somebody else.

It was a difficult period of my life. Debt affected me mentally, financially, and personally. There were times when it felt as though I had backed myself into a corner. The more I thought about the problem, the bigger it seemed. But eventually I stopped worrying about it and started dealing with it. I went through my finances carefully, figured out where the money was going, increased my income where I could, cut expenses, and made getting out of debt my priority.

It worked. I eventually became debt free. And the feeling of having no one waiting for a part of my income every month was liberating. More importantly, the experience permanently changed the way I think about borrowing, spending, saving, and investing.

There was no magic formula and no clever financial product that rescued me. I simply had to earn more, spend less, stop borrowing, and keep at it until the debt was gone.

Looking back, these are the things that helped me. Some are painfully obvious. That does not make them any less effective.

Increase Your Income

If you want to get out of debt, you have to earn more, spend less, or do both.

If you are unemployed, finding a job is obviously the first priority. It may not be the perfect job, but an income is better than no income when you are trying to become debt free.

If you are employed but underpaid, look for ways to improve your earning capacity. That could mean changing jobs, acquiring a useful skill, taking on additional work, or finding some other legitimate way to earn more.

If you are self-employed or run a business, look at the other side of the equation. Can you increase revenue? Can you improve your productivity? Can you make better use of your time?

When you are heavily in debt, your income is your biggest financial asset. Use it aggressively to get yourself out of the hole.

Make a Realistic Budget

You cannot become debt free if you do not know where your money is going.

Write down your monthly income and every significant expense. Do not rely on memory. Small expenses have a habit of adding up, and people are surprisingly good at underestimating how much they actually spend.

You need to create a monthly surplus and use that money to get out of debt. For the period in which you are becoming debt free, your budget should be deliberately conservative. This is not the time to maintain a lifestyle you cannot afford.

That does not mean you have to live miserably. It means that you temporarily distinguish between what you genuinely need and what you merely want.

Prioritize Your Spending

One of the most useful lessons I learned is that need and want are not the same thing.

Food, basic healthcare, shelter, essential transportation, and other unavoidable expenses have to be paid. Vacations, expensive gadgets, restaurant meals, entertainment, unnecessary subscriptions, luxury purchases, and similar expenses can wait.

Even among your necessities, there may be room to spend less. You do not have to buy the most expensive version of everything. You do not have to eat out when you can carry food from home. You do not have to replace something simply because a newer model is available.

When you are trying to become debt free, every rupee has a job. Give priority to the expenses that genuinely matter and postpone the rest.

Track Every Expense

A budget tells you what you plan to spend. Tracking your expenses tells you what you actually spend.

For a few months, record your expenses as accurately as possible. You will probably discover a few leaks that were invisible when you were simply looking at your bank balance at the end of the month.

It doesn’t really matter whether you use a spreadsheet, a notebook, or an app. What matters is that you actually record the spending and look at it regularly.

Once you start recording every expense, you become much more aware of where your money is going.

Pay Your Bills on Time

Being in debt is difficult enough without adding late fees, penalties, and additional interest to the problem.

Make your regular bills part of your budget and pay them on time. Missing payments can also damage your credit history, making future borrowing more difficult or expensive.

If your cash flow is tight, knowing exactly when your bills are due becomes even more important. Do not allow an avoidable late payment to make an already difficult situation worse.

Deal With Credit Card Debt First

Credit card debt can be particularly dangerous because it is easy to keep borrowing while making only the minimum payment. Interest then keeps accumulating on the unpaid balance.

If you have expensive revolving debt, make getting rid of it a priority. Stop using the cards to finance a lifestyle you cannot currently afford.

You do not necessarily need to cancel every credit card you own. The important thing is to stop adding to the balance and bring the outstanding debt under control. If having several cards encourages you to spend more, getting rid of some of them may make sense.

If you have several debts, start with the one charging the highest rate of interest, while continuing to make the required payments on the others. Once the most expensive debt is gone, move to the next one. You will pay less interest this way, and you always know which debt you are trying to get rid of next.

I wrote more specifically about this in my article on getting rid of credit card debt.

Sell Things You Do Not Need

Look around your home honestly. How much stuff do you own that you rarely use?

A second car, unused electronics, furniture, collectibles, expensive equipment, or other assets may be worth more as cash than they are to you sitting unused.

I have seen people hold on to expensive assets because selling them feels like admitting financial failure. That is the wrong way to look at it. If an asset is not useful and selling it helps you get out of debt, selling it can be a perfectly rational financial decision.

There is nothing impressive about owning things while owing money you cannot comfortably repay.

Use Your Tax Planning Wisely

Tax savings are useful, but they should not be the reason you make a bad financial decision.

Tax deductions associated with certain loans can change the calculation. A home loan, for example, is not necessarily comparable with high-cost unsecured debt simply because both are loans. Look at the interest rate, tax treatment, cash flow, and risk together.

The basic principle is simple: do not spend a rupee merely to save a few paise in tax.

Think Carefully Before Investing While You Are Deep in Debt

If you are carrying very expensive debt, especially credit card or other high-interest consumer debt, think carefully before putting additional money into investments. You are taking investment risk while continuing to pay a high and certain cost on the money you have already borrowed.

That does not mean that everyone with any amount of debt should liquidate every investment they own. The interest rate, type of debt, taxes, liquidity, investment horizon, and your overall financial situation all matter.

But if you are carrying expensive consumer debt and simultaneously looking for investments that might earn more than the interest you are paying, stop and do the math first. In many cases, becoming debt free should come before taking on additional investment risk.

Stop Borrowing to Repay Borrowings

This sounds obvious, but it is one of the easiest traps to fall into.

Taking a new loan or using one credit card to pay another may provide temporary relief, but it does not solve the underlying problem. Unless the new borrowing genuinely reduces the cost of the debt and forms part of a realistic repayment plan, you are simply moving the problem around.

The cycle has to stop somewhere, and it has to stop with you.

As RBI says, assess your repayment capacity and avoid borrowing excessively that can lead to a debt trap.

Be Careful About Converting Unsecured Debt Into a Loan Against Your Home

There is one idea that deserves particular caution. If you own a home outright, you may be offered a mortgage or loan against the property at a lower interest rate than your personal loans or credit card debt.

The lower interest rate can make the numbers look attractive. But you are also putting your home at risk. A credit card balance is unsecured debt. A loan secured by your house is a very different proposition.

Debt consolidation can sometimes make financial sense when it genuinely lowers the cost of borrowing and you have the discipline to stop accumulating new debt. But do not secure consumer debt against your home merely to make the monthly payment look smaller.

Make Impulse Buying Difficult

One simple way to control unnecessary spending is to make it a little harder to buy things on impulse. Taking only the cash you intend to spend when you go out can help. So can leaving your credit cards at home when you know you are likely to spend impulsively.

There are other ways to do the same thing. Do not save your card details on every shopping website. Do not browse shopping apps when you are bored. Wait a day or two before making a non-essential purchase. If you are not sure whether you need something, wait. You may find that you don’t want it after all.

When you are getting out of debt, avoiding an unnecessary purchase is effectively another way of earning money.

Keep a Small Emergency Buffer

Do not leave yourself completely without cash while aggressively getting out of debt.

An unexpected medical expense, urgent repair, temporary loss of income, or some other emergency can force you straight back onto a credit card if you have nothing available.

Build a modest emergency buffer appropriate to your circumstances, and then keep attacking the debt. Once the expensive debt is gone, you can build a proper emergency fund and start investing again without that debt hanging over you. I have written separately about how much emergency money you may need and where to keep it.

The Hard Part Is Sticking With It

The math was never the difficult part for me. Sticking to the plan was.

You have to spend less than you earn. You have to resist the temptation to borrow again. You have to be willing to postpone things you want. And you have to keep doing it month after month.

There will be times when it feels frustrating. You may look at friends who seem to be enjoying a better lifestyle while you are cutting expenses and sending your surplus money to the bank. Remember that you are not competing with them. You are trying to buy your own financial freedom.

Bottom Line

Though I used to lock horns with my grandpa on several other matters, the basic lessons in personal finance that I learned from him and my dad stayed with me. Those lessons eventually helped me deal with the debt I had fallen into in my twenties.

I became debt free by doing things that were not particularly sophisticated: I increased my income, controlled my expenses, lived below my means, and made becoming debt free a priority. There was no clever financial product that rescued me.

That experience also changed the way I look at money. Debt can give you something today in exchange for a claim on your future income. Sometimes that trade-off is necessary and sensible. But borrowing for consumption, and then borrowing again because the first debt has become difficult to service, can put you on a very different path.

If you are already in debt, do not waste time feeling embarrassed about it. Face the numbers. Work out what you owe, stop digging the hole deeper, create a surplus, and start working toward becoming debt free.

Becoming debt free may take time. But once you get there, the money that used to belong to your creditors belongs to you again. That is a very good place to be.