The Real Cost of Debt: Why I Choose Freedom Over Financing
Debt doesn’t just cost you interest. It costs you optionality.
This is the single most important thing I’ve learned about money, and it’s something the “mathematically optimal” crowd will never understand. When you owe money to someone, you’re not just paying them back with interest — you’re paying with your freedom to make choices.
The Mental Toll of Owing Money
There’s a weight that comes with debt that doesn’t show up on any balance sheet.
When you have an EMI, a part of your brain is always calculating. Can I afford this? What if I lose my job? What if there’s an emergency? That monthly payment becomes a background process running constantly, consuming mental bandwidth you could be using to think about bigger things — building a business, taking a risk, pursuing an opportunity.
A free mind is worth far more than whatever you’re financing.
I’ve seen people with impressive salaries who can’t sleep well because they’re worried about their obligations. I’ve seen people with modest incomes who walk with a lightness because they owe nothing to anyone. The second group is wealthier in the ways that actually matter.
The “mathematically optimal” argument says: “If my loan is at 9% and my investments return 12%, I’m making 3% by keeping the loan.” What that argument ignores is the cost of mental overhead, the risk of markets not performing, and the freedom you sacrifice. That 3% — even if it materialises — is a terrible trade for years of your peace of mind.
Two Examples
I’ve watched debt destroy people I care about.
My uncle took a home loan at a high interest rate to reconstruct his house. The numbers looked manageable on paper. They always do. In the end, he couldn’t keep up with the payments and had to sell the house. The toll on him and his family was devastating — not just financially, but emotionally. Years of stress, arguments, and ultimately losing the very thing the loan was meant to secure.
Then there’s my friend. He earns ₹1.5 lakhs per month — a salary most Indians would consider excellent. He took a personal loan to buy land near his hometown. Smart investment, people said. Build wealth, they said.
His EMI is ₹70,000 per month. He’s also the sole earner for his family — after all expenses, he barely saves ₹30,000 a month.
He tells me regularly that his job is killing his soul. He wants to start his own business — he has the skills, the ideas, the drive. But he can’t. That ₹70k/month obligation means he has to stay in a job he hates. By conventional Indian standards, he’s “doing the right thing.” He’ll eventually own that land free and clear.
But what’s the real cost? Years of his life spent doing something that drains him. The potential business that never gets built. The freedom he traded away.
When he finally pays off the loan, he’ll have a nice plot of land. But if he had built his business instead, the land would have been a rounding error in his net worth.
The Baby Steps: Indian Edition
I’m heavily influenced by Dave Ramsey’s debt-free philosophy, but his framework needs adaptation for the Indian context. Here’s my version:
Step 1: Build a ₹25,000 Starter Emergency Fund
Before you attack any debt, you need a small buffer. This isn’t your full emergency fund — it’s just enough to handle minor emergencies without reaching for a credit card or loan.
Step 2: Pay Off All Debt (Except Your House) Using the Snowball Method
List your debts from smallest to largest. Attack the smallest one first while paying minimums on everything else. When that’s done, roll that payment into the next one. The psychological wins matter more than the mathematically optimal order.
This is also the time to sell off your investments and things you’re not using. That mutual fund portfolio, the second TV, the gadgets collecting dust — liquidate them. The goal is to get out of debt as fast as possible.
During this phase, you’re in what Dave Ramsey calls “gazelle mode” — running from debt like a gazelle runs from a cheetah. No vacations. No fancy hotels. No lifestyle inflation. Minor treats to keep motivation up are fine — a birthday dinner, for example — but no exceptions beyond that.
Freedom is more important than temporary distractions.
Step 3: Build Your Full Emergency Fund + Get Insured
Once you’re debt-free (except the house), build up 6-12 months of expenses. If you’re planning to start something on your own, aim for 12 months.
This is also when you get health insurance and term life insurance (if you have dependents) — assuming your employer doesn’t already cover you. If your employer does provide coverage, remember that it disappears the day you resign. A medical emergency without insurance can wipe out years of savings overnight.
Step 4: Pay Off the House
Yes, even the house. I know this differs from conventional wisdom (and even from Dave Ramsey, who says to invest while paying off the mortgage). I prefer zero debt before investing. Personal preference, but the mental freedom of owing nothing to anyone is worth it to me.
Step 5: Start EPF Contributions
Now that you’re completely debt-free, you can start contributing to your EPF with employer matching.
A note on Indian EPF vs American 401(k): In the US, if you don’t contribute to your 401(k), you genuinely lose the employer match. In India, that 12% is already part of your CTC. If you opt out, you get it as taxable salary instead. There’s no “free money” argument for prioritising EPF over paying off debt.
Step 6: Start Investing in Index Funds
My allocation: 50% Nifty 50, 25% midcap index, 25% smallcap index. Simple, boring, effective.
Step 7: Build Your Runway (If Starting a Company)
If you’re planning to start a business, build up 3 years of runway in liquid funds before you make the leap.
A Note on Exceptions
There will be situations with genuine time-bound requirements — education that can’t wait, a family wedding that’s happening whether you’re financially ready or not. These are different from vacations, cars, and homes — those can wait, and you should save up for them.
If you must take on debt for these exceptions, do it with one mindset: pay it off as fast as humanly possible. Get in, get out, get free.
Why This Matters
My father once told me to buy a house. At the time, I was earning ₹2.7 lakhs per month. The EMI would have been around ₹50,000. By conventional wisdom, I could “afford” it.
I said no.
That ₹1 crore house isn’t what I’m chasing. I’m going after ₹100 crores. And the mental bandwidth I’d lose to a 20-year EMI? That’s the real cost — not the interest rate.
At that scale, the “optimal” financial decisions — keeping a low-interest loan to invest the difference, maximising credit card rewards, timing the market — are rounding errors.
What matters is the mental bandwidth to build something big. And debt steals that bandwidth.
Every EMI is a decision made for you. Every loan is a vote against your future freedom. Every “good debt” is still a chain around your ankle, no matter how comfortable the links.
I’d rather own less and owe nothing than own more and owe everyone.
That’s what freedom looks like.
“A debt should be paid off till the last penny; an enemy should be destroyed without a trace.” — Chanakya