If you have too many loans running, it's a good idea to consolidate your debts under one omnibus low-cost loan. Make a list of all outstanding loans and identify the high cost ones that can be replaced with cheaper loan. For instance, an unsecured personal loan that charges 18-20% can be replaced with a loan against life insurance policies. A loan against property can be used to repay all other outstanding loans. You could also consider other options like gold loans and loan against bank deposits.

It is also a good idea to prepay costly loans as soon as possible. Divert windfall gains, such as annual performance bonus, tax refunds and maturity proceeds from life insurance policies towards repayment of these high-cost loans.

Borrowers sometimes avoid ending loans because they offer tax benefits. If a house is self-occupied, up to `2 lakh interest paid on a home loan can be claimed as a tax deduction. If the house is given out on rent, the entire interest paid can be claimed as deduction. In case of education loans, the entire interest paid on the loan is tax deductible for up to eight years.

But this tax benefit alone should not be the reason to keep a loan running. True, the tax benefits bring down the effective cost of the loan. But you are still incurring an expense that can be avoided by ending the loan as soon as possible. Unless the money can earn you a better return than the effective cost of the loan, use it to prepay the outstanding sum.