When debt looks harmless but isn’t: The truth about over-leveraging
It doesn’t hurt immediately. Then one day, it breaks you: The truth about debt
Whether you’re a retiree, a mid-career professional, or a first-time investor, one truth applies to all:
Over-leveraging doesn’t hurt immediately. It hurts silently, then suddenly.
Let’s break down what over-leveraging really means, how to identify it, what to do if you’re in it, and how to walk back to safety without guilt or panic.
What is Over-leveraging?
In plain English, it means you’ve borrowed more than your income, assets, or emotional bandwidth can handle.
Over-leverage = Too much debt relative to:
Your income
Your investments or assets
Your ability to sleep at night
Why Over-leveraging Is dangerous (even if markets are good)
It’s not the loan that ruins you. It’s the timing mismatch between repayment demands and life’s uncertainties.
Step-by-step: How to avoid over-leveraging
Step 1: Use the 35/15/50 rule
EMIs < 35% of your monthly income
Savings > 15% of your income
50%+ of your income should be free for living + investing
If your EMIs are more than 40–45%, you are already close to the edge.
Step 2: Always ask “is this debt productive?”
Productive Debt =
Creates an appreciating asset (e.g., real estate, business machinery)
Generates income (e.g., rental property, franchise loan)
Improves human capital (education, skill loans)
Unproductive Debt =
Spent on lifestyle (gadgets, wedding loans)
Buying depreciating assets (cars, consumer durable EMIs)
Covering gaps in income (credit cards, payday loans)
Use borrowed money only to create value not to chase status.
Step 3: Build an emergency buffer before borrowing
Rule: Never borrow unless you have at least 6 months of EMIs in liquid savings.
Why? Because if you fall ill or lose income, your loan doesn’t wait. Your buffer buys time and time is the first asset in crisis.
What if I’m already Over-leveraged?
Let’s be honest many people realize this after the loans pile up. That’s okay. The goal is not guilt. The goal is a comeback plan.
Symptoms that you’re over-leveraged
More than 3 concurrent loans (e.g., car, personal, top-up, credit card)
You’re paying EMIs from savings not income
You’re unable to invest even ₹2,000/month
You delay or skip insurance, healthcare, or family needs
You’re applying for new loans to repay old ones
If you’re over-leveraged, here’s the plan back to normalcy
List All Loans on Paper
Note amount, EMI, rate, and tenure
Rank by Interest Rate
Credit cards > personal loans > vehicle loans > home loans
Create a 3-Bucket Plan
Urgent Repay → High-interest debt
Restructure → Longer tenure or consolidate
Hold → Low-interest, long-term productive loans
Cut Lifestyle Costs, Not Survival Costs
Cancel OTTs, dine-outs—but keep insurance and meds running
Avoid New EMIs ; Even “0%” Ones
0% EMI is a trap. It reduces your future flexibility.
Use Bonuses, Maturities, or Side-Income for Prepayments
Focus all windfalls toward clearing the top 2 costliest loans.
Avoid Asset Sales Unless You're Drowning
Don’t sell equity at market bottoms unless you must. Consider SIP pause instead.
What if there’s a necessity to borrow?
Not all debt is optional. Sometimes it’s needed medical bills, house repair, emergency education.
Here’s how to evaluate:
Always compare impact vs. interest cost.
Once normal, stay normal
Don’t celebrate freedom from debt with a new EMI.
Build up a cash reserve and then invest
Relearn the joy of saying, “No thanks, I’ll save for it.”
In closing…
Over-leveraging doesn’t look like failure. It often hides behind EMIs and credit limits.
But eventually, it shows up as lost peace, missed opportunities, and hard resets.
Stay alert. Borrow with purpose. And always protect your peace before your possessions.