Our EMIs are eating into our savings — What’s the smartest way to reduce debt, build buffer?

My wife and I (both 30, professionals in NCR) earn ₹3.6L/month but feel stretched due to heavy EMIs. I repay ₹44K for an education loan and ₹30K for a car loan. She has a ₹10L wedding loan, ₹6L education loan, and a ₹30L plot loan (₹30–35K EMI). We have no emergency fund. I hold ₹30L in mutual funds; she just started working. Our monthly expenses include ₹30K rent, ₹10–15K groceries, and other essentials. We're seeking advice on managing debt, building a buffer, and starting her investments—should I redeem part of my portfolio to ease the burden or hold tight?

Advice by Akhil Rathi, Head – Financial Advisory at 1 Finance

Liability planning is an important part of overall financial planning, yet many people tend to ignore it, which can negatively impact both cash flow and net worth. A strong financial plan must include emergency planning, where you maintain savings equal to 3–6 months of essential expenses, including EMIs, rent, groceries, and insurance premiums. This ensures you are financially prepared for unforeseen situations. Along with this, it is equally important to have adequate health and life insurance to safeguard your family’s financial security.

For managing your loans, start by listing each one with its outstanding amount, remaining tenure, EMI, and interest rate. Identify the loan with the highest interest cost and prioritise closing it, either by increasing the EMI or prepaying through your mutual funds. Do not rely only on interest rates—if most of the interest on a loan has already been paid, prepayment may not be beneficial. Instead, focus on loans with both high interest rates and high cumulative interest costs, as closing these will save you more in the long run compared to keeping the funds invested.

Smart debt management

Managing multiple loans can feel overwhelming, especially when EMIs consume a large portion of your monthly income. Effective debt management begins with understanding your total liabilities—list each loan, its tenure, EMI, and interest rate. Prioritise repayment of high-interest loans first, such as personal or education loans, to reduce your overall interest burden faster.

Building an emergency fund is equally critical. Aim to maintain savings worth 3–6 months of essential expenses, including EMIs, rent, and groceries. This financial cushion safeguards you during job loss or medical emergencies, preventing dependence on fresh borrowing.

When considering loan prepayment, evaluate where it makes the most impact. Redeeming part of your investments may be worthwhile if the loan’s interest rate is significantly higher than your investment returns. However, if you’re nearing the end of a loan term, much of the interest has already been paid, so prepayment may not yield large savings.

Equally important is protecting your family’s financial stability with adequate health and life insurance. Together, these steps—structured repayment, emergency savings, and insurance coverage—build a resilient foundation, helping you regain control over your cash flow while progressing toward long-term financial freedom.