The dream of living a life without EMIs and collection calls is a goal for millions of Indians in 2026. However, for many, the journey to becoming debts free feels like running on a treadmill—plenty of effort, but no actual forward movement. Often, the problem isn’t the size of your salary; it’s the subtle, recurring mistakes that keep you tethered to your creditors.
If you’ve been trying to clear your balances but the numbers aren’t budging, you might be falling into these common traps. Recognizing them is the first step toward true financial liberation.
1. Paying Only the “Minimum Amount Due”
This is perhaps the most expensive mistake any borrower can make. Credit card statements in India are designed to look manageable by highlighting the “Minimum Amount Due”—usually just 5% of your total balance.
By paying only this amount, you aren’t actually reducing your debt. Most of that payment goes toward the interest (which can be as high as 42% per annum), while the principal remains virtually untouched. To become debts free, you must view the “Minimum Amount” as a trap designed to keep you in debt for decades.
2. Treating “No-Cost EMIs” as Free Money
In 2026, every e-commerce platform and retail store offers “No-Cost EMIs.” While these don’t charge upfront interest, they often come with hidden processing fees (e.g., ₹199 plus GST) and, more importantly, they consume your future cash flow.
When you have five different “No-Cost EMIs” for a phone, a fridge, a watch, and clothes, you’ve essentially committed a large chunk of your salary before you even earn it. This “death by a thousand cuts” prevents you from building the surplus needed to pay off high-interest loans.
3. Neglecting the Emergency Fund
It seems counterintuitive to save money when you owe money, but skipping an emergency fund is a recipe for disaster. Without a safety net of at least ₹1,00,000 to ₹2,00,000, the moment a medical emergency or a home repair arises, you will be forced to take a fresh loan or swipe your credit card. This creates a “vicious cycle” where you pay off debt, experience a crisis, and go back into debt.
4. Relying on “Debt Refreshing” Instead of “Debt Clearing”
Many people attempt to become debts free by taking a new loan to pay off an old one. While debt consolidation can be a smart move if the interest rate is lower, it often fails because the underlying spending habits don’t change.
If you take a personal loan of ₹5,00,000 to clear your credit cards, but then continue to use those cards for lifestyle expenses, you end up with both a personal loan EMI and new credit card debt. This is “moving the furniture” rather than cleaning the house.
5. The “Lifestyle Creep” Trap
As your income increases in 2026, your expenses shouldn’t necessarily follow suit. Many Indians fall into the trap of “upgrading” their car or moving to a more expensive apartment the moment they get a raise.
If you get a salary hike of ₹20,000, and you immediately increase your lifestyle spending by ₹20,000, you have squandered a golden opportunity to accelerate your debts free journey. The most successful debt-slayers live on their old salary while using their new raises to kill their loans.
6. Ignoring the Psychological Order (The Snowball Effect)
Many people try to pay a little bit extra on all their loans simultaneously. While this feels balanced, it rarely works because you don’t see any single debt disappear.
To stay motivated, you need “wins.” Ignoring the Debt Snowball method—where you focus all your energy on the smallest debt first while paying minimums on the rest—is a mistake. Seeing a ₹20,000 personal loan hit zero gives you the psychological boost needed to tackle a ₹10,00,000 loan later.
7. Falling for “Buy Now, Pay Later” (BNPL) Convenience
BNPL apps are the “digital cigarettes” of the financial world. They are addictive, easy to use, and seem harmless at first. However, the ease of clicking “Pay Later” for a ₹500 meal or a ₹2,000 grocery bill detaches you from the reality of your spending. These small amounts accumulate into a massive month-end bill that eats into your savings, making it impossible to remain debts free.
8. Not Reviewing Your CIBIL Report
Mistakes on your credit report can cost you thousands of Rupees. Sometimes, a loan you closed years ago might still show as “Active” or “Overdue” due to a banking error. This keeps your interest rates high on existing floating-rate loans. An annual check of your CIBIL report is essential to ensure your path to being debts free isn’t being blocked by clerical errors.
The “Debt Trap” Checklist
| Mistake | Financial Impact | Better Alternative |
| Minimum Payments | 40%+ Interest annually | Pay at least 2x the minimum |
| No-Cost EMIs | Blocks future income | Save and buy with cash |
| No Emergency Fund | Relapse into debt | Save ₹50,000 as a starter fund |
| Lifestyle Creep | Zero growth in savings | Use raises for debt repayment |
Conclusion
Becoming debts free is 20% head knowledge and 80% behavior. The math is simple: spend less than you earn and pay off your balances. The execution, however, requires you to avoid the modern temptations of easy credit and impulsive spending. By avoiding these eight common mistakes, you can stop running in circles and finally start moving toward total financial freedom.