Paying EMIs at 18%? Why clearing costly NBFC debt matters more than starting SIPs

Chartered Accountant and personal finance commentator Nitin Kaushik has urged individuals to prioritise paying off high-interest loans from non-banking financial companies (NBFCs) before focusing on investments, arguing that expensive debt is one of the biggest silent destroyers of wealth.

In a detailed post on X (formally twitter), Kaushik said financial freedom does not begin with investing in mutual funds or stocks, but with eliminating “the wrong kind of debt” — particularly NBFC loans that charge interest rates of 16-18 per cent.

“These loans may feel manageable in the beginning, but over time the EMIs become a major roadblock to wealth creation,” he wrote, warning that borrowers often underestimate the long-term impact of high interest costs.

Kaushik explained that most long-term investments such as mutual funds or index funds generate average annual returns of around 12-13 per cent. When loan interest exceeds expected investment returns, individuals are effectively losing money rather than growing it.

“Every ₹1 lakh borrowed at 18 per cent interest means paying roughly ₹18,000 a year just in interest,” he noted. “That’s not leverage — that’s leakage.”

Beyond the financial impact, Kaushik highlighted the emotional toll of persistent debt, saying it erodes peace of mind and shifts people from long-term planning to short-term survival. He pointed out that many borrowers begin avoiding checking their bank balances, aware of recurring outflows through EMIs.

The CA also drew attention to the broader financial ecosystem, noting that NBFCs themselves have been cleaning up their balance sheets by writing off thousands of crores in bad loans over recent quarters. “They are clearing their debts. The question is — are you clearing yours?” he asked.

According to Kaushik, financial discipline does not start with higher income but with reducing high-cost liabilities, particularly loans taken to finance assets that depreciate over time. He advised individuals to pause aggressive investing plans and first eliminate loans that cost more than they earn.

“Closing an EMI early is like earning a guaranteed return,” Kaushik said, adding that saving 18 per cent in interest is equivalent to earning an 18 per cent tax-free return.

Once such debt is cleared, he said, the same monthly cash flow can be redirected toward productive assets such as equities, real estate, or long-term financial goals. This shift, he argued, moves individuals from “survival to strategy” and from managing money to multiplying it.

“Real wealth isn’t built by chasing the next multibagger,” Kaushik concluded. “It’s built by cutting off what quietly drains your growth.”