Land degradation is a pivotal environmental concern, bearing substantial impacts in the Gidabo river basin (GRB) in Ethiopia, prompting a critical need for effective mitigation strategies. In this study, we aimed to assess the dynamics of land degradation pathways in the context of change in climate and land use. The identification of potential erosion hotspots and the appraisal of management strategies was also carried out. The Soil and Water Assessment Tool (SWAT) and the Good Practice Guidance (GPG) framework was employed. The results revealed a compelling synergy between land use dynamics and climate changes, asserting joint and individual prevalence in influencing surface runoff and sediment yield. The past simulation revealed 4–5.9% and 24–43% increments in mean annual runoff and sediment yield, respectively. While the near (2021–2040) and mid (2041–2060) future scenarios displayed varying trends under RCP4.5 and RCP8.5. Furthermore, sub-basins prone to soil erosion risk were identified, thereby enabling targeted conservation efforts. The assessment of trends in land degradation neutrality (LDN) unveiled the expansion of land degradation trajectories (by 26%) from 1985–2003 to 2003–2021. This might be attributed to the dynamic interplay between climate and land use land cover (LULC) change, with croplands and bare land emerging as high-risk degraded areas. Addressing these concerns, soil/stone bund, terracing, contour farming, and reforestation practice can significantly reduce the annual sediment yield in the future. The integration of soil erosion indicators with LDN sub-indicators can provide a more comprehensive approach that can lead to more effective land management and restoration strategies to achieve the LDN goal. The findings of this study could contribute crucial insights and substantial implications for policymakers, land managers, and conservationists. Moreover, future efforts should be directed to expand investigations into diverse land degradation pathways and mitigation measures.