How a Year-End Debt Check Help Families Enter New Year Stress-Free

As the year 2025 comes to an end, many households are struggling with the weight of high-interest loans. EMIs have been eating into family budgets, while interest charges continue to grow. Financial experts say this is the right time to conduct a year-end debt check so that borrowers can enter a new year stress-free.

Taking Stock of All Loans

The first step towards a debt audit is to prepare a list of loans. This includes creating a record of the loans - home loans, personal loans, credit card dues, etc. - with a note on the number of loans pending, how much money has been paid so far, the balance, and the tenure for repayment. Loan statements or mobile apps can help reveal hidden costs that borrowers may often overlook.

Experts explain that not all loans are equal. A home loan is often considered a good debt, as it is carrying a lower interest rate and helping build an asset. However, personal loans and credit card borrowings fall under the "high-cost debt" category with their higher interest rates and inability to create long-term value. Being aware of this difference helps families decide which loans to be repaid first.

Interest Reduction

Giving priority to higher interest rate loans will help mitigate the overall financial burden, say experts. With this approach borrowers can save the maximum amount of money in the long run.

For example, if a borrower focuses on prepaying a home loan of 50 lakh rupees at an interest rate of 7.5 per cent over 15 years, it will help bring big savings as in the early years of repayment, more than 60 per cent of the monthly instalment goes towards interest.

Consolidating Loans

Consolidating several loans into a new loan with a lower interest rate can help reduce the number of monthly payments and make the debt more manageable. Experts advise borrowers to compare interest rates, repayment terms, fees, and risks involved before selecting a consolidation plan.

Consolidation is particularly helping credit and debit card holders, as they can roll balance into a personal loan or a top-up home loan at a lower rate. Paisabazaar's debt consolidation guide explains: "Debt consolidation is an act of merging all your high-interest outstanding loans and credit card balances into a single manageable loan, ideally availed at a lower interest rate and longer tenure... By consolidating high-interest debts with a lower interest rate loan, you can reduce the overall interest cost."

Getting Better Terms from Banks

This method helps borrowers raise their credit score. A better credit score means the borrowers are trusted more and have the eligibility to secure more loans. They can also research market rates without a hard credit check and present the findings to their bank. Keeping the EMIs to Net Monthly Income Ratio below 55 percent also improves the chances of getting better offers.

According to a report by Paizabazar, a high credit score can help in getting credit easily, whereas a low score can make it difficult to avail credit in the future... Improving your credit score beforehand would ensure you have high creditworthiness when you apply for a loan.

Penalties

Borrowers should check for penalties before an early closing of loans. The Reserve Bank of India has said that there won't be a foreclosure fees on floating-rate individual term loans. This is good news for people who have home loans. But fixed-rate personal loans usually cost 2% to 4%. Families should figure out if paying off their debt early is worth.
It can help your saving, minimise the time of the EMIs and raise the credit score. Borrowers should carefully read the requirements as many lenders may not prefer an early closing of the loan.