Bhuvanaa Shreeram felt liberated when she started earning for herself more than 24 years ago. It meant she could begin repaying her education loan. She soon took the next logical step and got married, but then came a personal loan. Like many families, the couple bought a home with a housing loan, and a car on finance. Eventually, when their combined monthly income could no longer bear the burden of EMIs, they began relying on credit cards to get through the month.
The downward spiral was quick and brutal. But the realisation of the catastrophe ahead came only when the family faced a medical emergency and had to pledge its gold to pay hospital expenses. Their income didn’t last beyond the 10th of the month, and Shreeram knew something had to change. As they were just one hospitalisation away from financial disaster.
This was some 20 years ago. Since then, for 18 years Shreeram, who is the co-founder of House of Alpha Investment Advisers Pvt Ltd, has been working as a financial planner and adviser after completing her CFP in 2008. While the thought of debt robbing people of their freedom still scares her, she has now made it her profession to ensure that more individuals achieve true financial freedom.
The RBI’s Financial Stability Report shows that 58% of aggregate household debt in India comprises non-housing retail loans. These are largely unsecured loans, where repayment depends directly on income.
The typical customer profile for debt relief and loan settlement company, FREED is a young earner up to the age of 35, earning around ₹40,000-45,000 a month with roughly ₹5.5 lakh in delinquent debt spread across six or seven credit lines. Their EMI-to-income ratio often exceeds 100%. Typically, they begin with a bank loan at the top of the lending pyramid. As creditworthiness declines, so does the quality of lenders, eventually pushing them towards app-based lenders that charge exorbitant interest rates, with annual percentage rates (APR) reaching 300%-400%.
According to Ritesh Srivastava, founder and CEO of FREED, “While we are talking about unsecured loans, it’s not all consumption-driven. Life happens. There are job losses, pay cuts, medical emergencies and weddings, and all of it adds up to a financial burden that cannot be borne by current income. Loan stacking sometimes helps people manage everyday expenses, and sometimes it’s simply desperation to survive.”
Srivastava pointed out that high earners are not automatically better money managers. FREED’s highest debt resolution involved outstanding dues of ₹2.7 crore across credit cards and personal loans. Presumably, the borrower had the income and creditworthiness required to secure such large loans. Young or middle-aged, engineer or doctor, equity trader, salaried professional or gig worker — no profile is debt-proof.
It doesn’t help that access to loans has become frictionless. A loan of up to ₹5 lakh may already be pre-approved or can be sanctioned within minutes. But when wage growth is limited to 8%-10% a year, servicing debt at interest rates of 12%, 24%, 36% or more is bound to hurt.
Whether it’s an elevated standard of living, inflation, keeping up with the Joneses or a genuine emergency, there is always a reason for taking the first loan. The problem begins when loans start stacking up and you borrow from one lender to repay another. Getting out of this vicious cycle requires commitment and sustained action.
Acknowledging personal debt can be distressing. Don’t wait until you’re trapped in a corner. Write down all your lenders. Against each, note the exact outstanding amount, the interest rate and the remaining tenure. Avoid estimates. Personal loan interest rates can range from 10% to 25%, depending on the lender. Credit cards typically charge around 36%-42% annually. Short-term app-based loans for 10-15 days can carry APRs exceeding 200%-300% annually.
Writing everything down leaves no room for denial; you’re forced to confront reality. Shreeram says, “Step one is to stop digging a deeper hole.” Acknowledging your current debt is the first step towards avoiding the next loan.
Add up all your monthly repayments or EMIs and divide the total by your monthly income. A high ratio is a warning sign. While there is no official benchmark, experts suggest that EMIs amounting to 30%-35% of monthly income are manageable. Anything above 60% is firmly in the danger zone. Your credit score may allow another loan to be sanctioned, but can your monthly income absorb another EMI?
Put your most expensive loan at the top of the list. Not all loans are created equal. If you’re paying only the minimum amount due on a credit card, every ₹1 lakh outstanding could cost around ₹3,000 in interest in the first month, with that burden continuing until you begin repaying the principal. The same ₹1 lakh as a personal loan would attract an EMI of ₹8,815, of which ₹875 would be interest in the first month, tapering to below ₹100 in the final month. Total interest would be ₹5,772 because the loan follows a reducing-balance structure. The cost profile of every loan is different. You need to know which ones are draining your finances the fastest.
Consider negotiating with your lender. For large bank loans, especially where job loss, disability or other setbacks make repayment difficult, communication is critical. Lenders may offer a restructuring or debt resolution plan spread over a longer tenure to reduce the monthly burden. If you have multiple loans, create a repayment system that rewards progress. Shreeram suggests repaying the smallest loan first. It’s easier, delivers an early win and builds confidence. Alternatively, if you have surplus cash, you can repay either the highest-cost loan or the largest loan first. High-cost loans are often relatively small and short-tenured, making them easier to eliminate quickly. Paying off the largest loan first can free up significant cash flow early on, but it is usually harder to achieve.
If repayment discipline doesn’t come naturally or if negotiations with lenders aren’t progressing, seek professional help. Engage a financial planner or an established debt resolution company. Both charge fees. A financial planner has a broader role, helping organise your cash flows, investments and overall finances.
“We have clients who are scared of loans and EMIs, others who are confident in their earning capabilities and keen to leverage their existing assets and some who are indifferent to loans and EMIs, but flexible enough to take the recommended approach. How one perceives their debt will determine their willingness to borrow. Each case of repayment or loan switch, further depends on the the circumstances and financial liability,” says Amit Kukreja, a Gurugram-based SEBI-registered investment adviser. A debt resolution company focuses on consolidating debt and resolving delinquent loans. Such firms can also help borrowers deal with aggressive collection practices and harassment by lenders. If you can move beyond the immediate shame that often accompanies heavy debt, you’ll discover that borrowers have rights too, and that professional solutions exist to help break the cycle.
Get started. Realign your behaviour. Build a system. And ask for help.
Lisa Pallavi Barbora is a freelance writer and author of Money & Her
