How to Get Out of Debt Trap – A Legal Guide for Indians in 2025

Caught in a cycle of endless EMIs and mounting credit card bills? You’re not alone. Understanding how to get out of debt trap is critical today, especially for Indian consumers grappling with high-interest loans, job losses, and financial emergencies. In fact, according to the Reserve Bank of India (RBI), India’s household debt rose by 17.8% in 2024, much faster than income growth — a sign that more and more people are slipping into a debt trap.

So, how to get out of debt trap legally, safely, and permanently? In this guide, you’ll find a step-by-step approach, practical legal solutions, and advice on your rights — so you can start your journey to freedom from debt.

Whether you’re dealing with credit card dues, personal loans, or aggressive recovery agents, this blog from AMA Legal Solutions gives you everything you need to know about how to get out of debt trap in India.

What Is a Debt Trap?

A debt trap happens when your debt obligations are so high that you’re forced to take new loans to pay off existing ones. It’s a vicious cycle, especially with unsecured loans like credit cards and personal loans where interest rates can cross 30–40% annually.

Common Signs You're in a Debt Trap

• Monthly loan EMIs exceed 50% of your income

• You use one credit card to pay another

• You have multiple overdue EMIs

• You’re skipping essentials to repay loans

• You're receiving legal notices or recovery calls

Why Do People Fall into a Debt Trap?

1. Over-Borrowing on Credit Cards

Credit card loans are among the costliest in India. Without budgeting, people end up repaying just the minimum due, piling up interest.

2. Easy Personal Loan Approvals

Fintechs and NBFCs offer personal loans without thorough income checks. This easy credit leads to overspending and repayment defaults.

3. Lack of Financial Literacy

Most borrowers don’t understand interest structures, EMI planning, or the consequences of delayed payments.

4. Medical or Family Emergencies

Unexpected events force many to borrow beyond their capacity.

How to Get Out of Debt Trap in India – Step-by-Step

Evaluate Your Financial Position

Make a Debt Inventory

List all your liabilities — credit cards, personal loans, buy-now-pay-later apps, and informal borrowings. Include:

• Outstanding amount

• Interest rate

• EMI

• Payment date

Prioritize Repayments

Focus on:

• Secured loans (like home or vehicle loans)

• High-interest loans (like credit cards)

Consolidate and Negotiate

Debt Consolidation

Merge multiple debts into a single low-interest loan. This helps lower your EMI burden.

Example: If you have 3 personal loans at 18%, you can shift to a secured loan at 11%.

Negotiate with Creditors

With legal help, you can:

• Request lower interest

• Settle the total amount for a one-time payment (OTS)

• Request a moratorium or restructure plan

AMA Legal Solutions can legally assist in negotiating settlements with banks and NBFCs.

Use Legal Protection if Harassed by Recovery Agents

Know Your Rights Under RBI Guidelines

Recovery agents cannot:

• Threaten or abuse you

• Call you outside 7 AM–7 PM

• Visit your office without consent

✅ Reference: RBI Recovery Agent Guidelines

File a Complaint if Needed

You can:

• Send a legal notice

• File a complaint with RBI Ombudsman

• Approach the consumer forum or police for harassment

AMA Legal Solutions helps clients file RBI/Police complaints across India.

Consider Legal Debt Settlement Services

What Is Debt Settlement?

A legal debt settlement is a negotiation between you and the lender where you agree to pay a lower amount to close your loan permanently.

When Should You Choose It?

• You’ve lost income

• You cannot repay full EMIs

• Lender is open to compromise

Always do this with legal representation to avoid future disputes. Visit AMA Legal Solutions to consult experts.

Build a Financial Recovery Plan

Budgeting and Expense Control

Start tracking:

• Fixed vs. variable expenses

• Unused subscriptions

• Impulsive buying patterns

Increase Your Income

• Part-time gigs

• Rent out space/assets

• Freelancing or upskilling

Emergency Fund

Build at least 3–6 months’ expenses in a liquid instrument to avoid future debt.

Getting trapped in debt is stressful - but not permanent. With the right legal guidance and financial discipline, you can break free.

Remember, you’re not alone. Thousands of Indians are asking how to get out of debt trap, and many have found relief through debt restructuring, negotiation, and legal support.

If you or someone you know is in a debt trap, contact AMA Legal Solutions — we’ve helped 3000+ individuals legally settle debts, stop harassment, and start over.

👉 Take the first step today. Book your consultation now.

According to SEBI data, over 30% of retail investors in India rely on credit to fund their investments — a risky trend that often leads to financial distress. Now more than ever, knowing how to get out of debt trap is your key to lasting financial security.