Source: Radio New Zealand
Experts advise that working out exactly how much you owe is the best starting point. Unsplash/ Rupixen
Is organising your money life on your New Year’s resolution list in 2026? In this five-part series, money correspondent Susan Edmunds guides you through the basics.
Is your debt weighing you down? If the past 12 months have been tough, you might have been relying on credit cards and other loans more than you normally would have.
If you’ve decided that’s going to change this year, there are a few things you can do to help shake it off.
Set a manageable target
It’s a good idea to start with a realistic idea of how much debt you might be able to clear within what timeframe.
The most recent Reserve Bank data shows that households have debt that is 168 percent of household disposable income – so for lots of us it won’t be reasonable to try to clear it all in 12 months.
Think about how much money you might have available to put towards debt repayment, and set some targets from there.
Pay off highest-interest debt first
Financial coach Liz Koh said people should start by working out what they owed. Even if it’s uncomfortable reading, it’s a good idea to make a list of all your debts and how much interest is being charged on them.
” If you have many small debts you might be surprised at what they add up to,” she said. “Rank your debts in order of priority for payment.
“Set up an automatic payment to make additional voluntary payments on the first debt on your list. Leave your other debt payments at their minimum level. When the first debt is paid off, start on the next one on the list and keep working through until all debts are repaid.”
It often makes sense to try to clear the highest-interest debt first because this is costing you the most money. Check that you don’t incur any extra fees or penalties, though – if you do, you might need to shift your focus elsewhere.
Or smallest debt
Another option is to focus on your smallest debt first. That means you’re likely to clear it relatively quickly and can move on to the next debt. That series of small wins can be quite motivating.
Student loan debt
Because it’s interest-free when you’re in New Zealand, a lot of people put student loan debt last on the list.
This makes sense, but the repayments do take a chunk of your income – 12 percent of your income over about $24,000 a year.
If you’ll be applying for a home loan in future, you might think about paying it off more quickly to improve your income, but you’ll need to balance that against the need to have a solid home loan deposit. A broker can advise you on the best strategy.
Generally, if you’re near a threshold such as a 10 percent, 15 percent or 20 percent deposit for a house, it’s better to focus on reaching that but otherwise paying off your student loan could be helpful, depending on your circumstances.
Student loans are part of the calculation when banks look at your debt-to-income ratio.
Consolidation
If you have a number of loans and you’re finding it hard to manage them all, consolidation could be an option. This is where you take out one big loan to pay off all the smaller ones.
It usually means you only have to worry about one payment a month instead of several – which can be helpful from a life admin perspective.
It’s worth checking the terms of your consolidation loan, though. A higher interest rate or longer term can mean you end up paying more overall for your debt overall.
If you’re struggling to pay the debt, longer term and smaller repayments can still be sensible, even if it’s more expensive – as long as you don’t feel that having consolidated the debt gives you a free pass to go and take out more.
Take action if you’re in trouble
If you’re seriously struggling with any of your debt, your first call should be to the lender. They can talk to you about what your options might be.
You have a right to ask a lender to change your loan terms if you’ve suffered a hardship that you couldn’t have seen coming, and you can’t meet your repayments as a result.
That might mean that the lender extends the term of the contract and reduces the payments, puts off debt repayments for a period of time or a combination of both.
A financial mentor might also be able to help, or services such as Christians Against Poverty. If your employer offers an employee assistance programme (EAP) you may be able to access help this way, too.
It’s really important not to just ignore debt that has become a problem. This never makes it go away.
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– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand
