Managing debt

Debt is money you owe to a lender like a bank. You often have to pay it back in set repayments on set dates and you’ll usually pay interest. 

Types of debt include:

• Buy now, pay later
• Credit cards and store cards
• Hire purchase
• Home loans
• Overdrafts, both planned and unplanned
• Personal loans such as car loans or debt consolidation loans
• Student loans.

Some types of debt have the potential to improve your assets or earning power, like a home loan or student loan. These could be described as ‘good’ debt.

But debt can also be not-so-good when you use it to spend more than you earn, especially on things that lose their value quickly or impulse buys that you don’t really want or need. 

When you borrow money, having a plan to repay it makes good financial sense. Repaying debt also helps your mental wellbeing and improves your credit score.

If your debt starts to mount up, it may be tempting to put it in the too-hard basket. But ignoring the problem can make you feel more stressed and less in control. You may also end up owing more money in interest and late payment fees. 

Write a list of all your debts, including:

• The lender
• Repayment amount and frequency, e.g. fortnightly or monthly
• Due date for the next payment
• Loan term – when you must pay it off in full
• Interest rate
• Any penalty fees, e.g. for late payment, so you can see how much you’ll save by sticking to a repayment plan.

You may want to label each debt as ‘good’ or ‘not-so-good’. This can help you see if you often use debt to spend more than you earn.

Getting your debts out in the open helps you feel more in control. It’ll make it easier to budget as you’ll know how much to include for debt repayments alongside other needs like bills and rent. 

Check your list of upcoming payments and make sure you can pay at least the minimum payments by the due date. You’ll avoid penalties like late payment fees.

If you’ve got set repayments on any debt, it’s important to pay on time and in full to avoid any extra interest or penalty fees.

Talk to your lender as soon as possible about how to make it easier to repay what you owe. You can also talk to your bank about options to manage your debt. 

Examples include:

• If you have an unplanned overdraft, setting up an arranged overdraft with lower interest and fees 
• If you have a personal loan or home loan, changing your repayment plan, e.g. lower repayments over a longer time
• A debt consolidation loan or balance transfer.

Instead of monthly repayments, paying weekly or fortnightly can pay off your loan faster. This can reduce the amount of interest you’ll pay over the life of your home loan, personal loan, or overdraft.

If you can afford to make extra payments – and your loan agreement allows it without extra charges or fees – this also helps.

Your credit score shows if you have a history of overdue payments on bills, fines, and debts like credit cards and loans. Banks and finance companies look at it when deciding to lend you money. Landlords and insurers may also check it.

You can improve your credit score by paying bills and loan repayments on time.

You can get your credit report for free from one of New Zealand’s three credit reporting agencies, Centrix, Equifax and illion.

Figuring out your finances can be a big job, especially if your income or living situation changes. For tips on managing your money to financial support options, call us on 0800 269 296. 

Our hardship team may be able to offer extra support if you experience a hardship event, e.g. job loss, serious illness, a relationship breakdown.