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It’s often easy to get into debt but not so easy to get out of it. Which debt should you pay off first? How can you manage a credit card without it costing too much? Should you take out a loan in the first place? How does buy now, pay later work?
Saving for an emergency fund of $1,000 is a great place to start, and then tackle all high-interest debt you're carrying. When you pay down debt first, if an emergency pops up, you are forced to borrow more in a crisis. With an emergency fund, however, you can handle those unexpected events like a car repair or trip to the vet, without sliding further into debt. The goal is to get out of debt for good, so here's more on starting your safety net.
A typical limit with a pay-later company is up to $1,500, and you can borrow with more than one pay-later company. But having too many of these going at one time is tricky to manage – it’s much easier and safer to have only one going at a time. If you must take out more than one of these, list them all and set a reminder in your phone when repayments are due. Here’s how to shop smarter when you’re using pay-later options like Afterpay, Laybuy or Zip.
One of the most important things that mortgage lenders look at is how much income you have free in order to make loan repayments. With too much debt, a lot of your income is already committed to other loans, and there's only so much to go around. Even if you’re not using all of your credit limit, it’s important to know that the lender will assess you as if you have. They will also look at your credit history, and how well you’ve repaid other loans. In the end the lender may decide to lend you less, or nothing at all. Here's more on what to expect to borrow when you're buying a home.
We’re looking to pay off all high-interest debts. When you have a number of loans on the go, there are a couple of strategies that help to take them down. The first is a "debt avalanche", where you list all your debts and target the highest-interest loan first (the most expensive). This is the cheapest and quickest way out of debt. The second is a "debt snowball", where you target repaying the smallest loan first. This can be more motivating and effective for some people. Here’s where to find out more which suits you.
Wrapping all our debts together and paying them off at once – ideally at a lower interest rate so we get out faster – can be helpful. But the key is to leave borrowing behind! Many times we've seen that consolidating debt into a single loan, while it seems like a good idea financially, in practice leads to more debt. Aim to close out your old credit cards and other ways of borrowing so you don’t end up racking them up again. Here's how to make debt consolidation work for you.
If you have a bunch of debts on the go, focus on tackling one at a time. Which one’s first? There are two strategies: the first is to pay more towards your highest-interest debt – the one that costs the most – and make minimum repayments on the rest. That’s the cheapest and quickest way out. The second strategy is for when you need a little extra momentum and motivation: you pay off the smallest debt first for a satisfying quick win. Either way, when the first is done, funnel your extra money towards the next on your list. Rinse and repeat. Find out which strategy works for you.
Taking on debt is risky, since in the future our situation may change and we might find it difficult to repay the loan. So if our circumstances did suddenly change, would it put us in real difficulty? If so, it's too much debt. Another sign is if you’re just keeping up with minimum payments, and the debt doesn’t ever seem to be going down. A lender has ways of protecting themselves when loans go bad, including default fees and interest rates, and even the ability to write it off and sell it. The only defence we borrowers have if something goes wrong is our own reserves. Here's one borrower's story.
Managing our borrowing well can increase our score. Credit reports record any missed payments (defaults) and how long they are overdue. They also can show how much we've borrowed and whether we've made regular repayments or not. Our credit history also shows how often we've applied for loans, and too many enquiries can push our scores down. You can get your credit report for free by requesting it – here's where to find out more.
Yes. When you buy something using pay-later options like Afterpay, Laybuy or Humm, you pay a small part straight away and the pay-later company pays the rest. You receive the item straight away. Then you pay the company back in instalments – typically three fortnightly repayments. This type of loan, if you make the repayments on time, is interest-free. But costs can add up if you miss a payment. Here's how to use pay-later options.
Because your student loan repayments are 12% of every dollar you earn above $20,020, that obviously affects how much money you have available to repay a mortgage. Having a student loan makes a mortgage less affordable and can affect mortgage applications. Here are other criteria that affect your ability to borrow.
What can help most is a budget, a buffer and a strategy. A budget is really just a plan for your spending – it’s a big help when you’re directing your money towards a goal like being debt-free. But even before you tackle your debt, it helps to still make the minimum repayments but then save an emergency fund of $1,000 first. That way you’re ready for the unexpected. Without a safety net, if something happens, you’d just have to run up your debt all over again. Finally, you can consider strategies for tackling debt, and debt consolidation: find out which will work best for you.
After you are unable to repay a loan, debt collectors buy your debt from the original lender for cents on the dollar, and then have a go at harassing you into repaying. This can include phone calls at all hours and knocking on your door. We wouldn't wish it on anyone, but if you do get caught out with a debt collector, it helps to have someone in your corner. The team at MoneyTalks is worth reaching out to in order to give you the support you need.
Pay-later options are a kind of debt. They are a way of borrowing without interest or fees (the seller covers these costs), as long as you use them right. Most maximum limits on these pay-later options run from $1,000 to $1,500. But Humm's "Big Things" loans are a bit different and can go as high as $10,000, with the repayments spread out over as long as 24 months. Here’s how to shop smarter when you’re using pay-later options like Afterpay, Laybuy or Zip.
Because there is no interest adding up with student loans (if you’re not living overseas), the debt is not getting more expensive over time. So there's less rush to pay it off. (There are fees of $60 each year and you’ll need to pay back 12 cents of any dollar you earn above $390 a week.) Sure, it would certainly be better to finish it off and have more income. But moneywise, you could be better off using any extra money you have elsewhere, such as paying off a high-interest debt or investing for your future. Find out more about student loans.
You can get ahead financially by taking out loans (for your education, starting a business, or buying a property), but generally debt is a drag – it slows us down moneywise. Basically what we are doing is spending our future money ahead of time by borrowing. And if our borrowing is for things that do not increase in value, or even lose value in time, they are a certain liability.
If you run into trouble repaying, it’s good to contact your lender as soon as possible to discuss – you have the right to ask for new arrangements to repay. If you fall behind on repaying your loan, you can be charged penalties in the form of fees or a higher interest rate. Your late payments will be recorded against your credit score (which affects your ability to borrow more someday). If you can't repay your loan at all, and your lender gives up trying to get you to repay, they can sell your loan to a debt collector. Then they have a go at harassing you into repaying. We wouldn't wish it on anyone, but if you do get caught out, it helps to have someone in your corner. The team at MoneyTalks is worth reaching out to for support.
When you’re deciding how quickly to pay off your student loan, remember that as long as you stay in the country, it’s interest-free. That makes it different from other loans that get more expensive the longer you have them. True, you do have annual fees and need to pay back 12 cents for every dollar you earn above $390 per week. But because there is no interest adding up, it's not getting more expensive over time and there's less rush to pay it off. It would certainly be better to finish it off and have more income. But moneywise, you could be better off using any extra money you have to pay down a credit card or invest for your future, for instance. Find out more about student loans.
Repayments are typically scheduled in four or six payments each week or fortnight, depending on which company you’re using. Your first payment will be straight away when you get what you’re buying, and the rest of the repayments will be taken out automatically from your bank account or your credit card. Here’s how to shop smarter when you’re using pay-later options like Afterpay, Laybuy or Zip.
When you can’t make repayments, the best thing to do is talk to your lender as soon as possible to make arrangements. You might be surprised how willing they are to make things work with you and your loan. The quicker you get in touch, the better placed they are to help you deal with financial stress. After all, they deal with this sort of thing all the time. We also highly recommend you contact MoneyTalks, which runs a free helpline – you can easily chat online, call 0800 345 123 or text 4029 to find your way forward.
Your credit score reflects your borrowing history, and lenders look at your score when they are deciding whether to lend to you or not. Managing your borrowing well can increase your score. Credit reports record any missed payments (defaults) and how long they are overdue. They can also show how much you’ve borrowed and whether you've made regular repayments or not. Your credit history shows how often you've applied for loans, and too many applications can push your score down. You can get your credit report for free by requesting it.
If you miss a repayment because you don’t have enough funds in your bank account when the pay-later company goes to deduct your repayment, you are charged a penalty, usually $10. But if you keep missing payments, the penalties can go as high as 25% of the original price you paid. Missing repayments will also affect your credit rating. You’ll want to avoid this so you’ll have a good credit score and can borrow more in the future. If you find yourself unable to repay entirely, your debt will be referred to a collection agency. Here’s how to shop smarter when you’re using pay-later options like Afterpay, Laybuy or Zip.
Probably not, unfortunately. Credit card rewards programmes are designed to keep you putting things on plastic, and they rarely give you back any more than two cents for every dollar you spend. (We don’t expect loyalty programmes to save you that much more.) The majority of credit card users would benefit most by shopping around for the lowest-interest, no annual fee credit card and sticking with that. Here are our top tips for managing credit cards.
It helps to focus on repaying one debt at a time while making the minimum repayment on the others. Trying to take them all on at once stretches them all out. When you have a number of loans on the go, there are a couple of strategies that help to take them down. The first is a "debt avalanche", where you list all your debts and target the highest-interest loan first (the most expensive). The second is a "debt snowball", where you work on repaying the smallest loan first. Find out which could work for you.
KiwiSaver can’t be used to clear debt – sounds like what you did was withdraw from KiwiSaver to cover your expenses and keep food on the table (which is what a hardship application is for) and then used it on your debt instead. Ouch. The key is to change how you manage your money so you no longer need to depend on debt to make ends meet. This is admittedly hard to do, but with help and support, you've got this! We recommend reaching out to the great team over at MoneyTalks. They run a free helpline that can even be used anonymously at first if you like. You can easily chat online, call 0800 345 123 or text 4029 to find your way forward.
It might not. It's really important to slow down any quick money decisions we're making, so that we make sure to avoid the pitfalls that debt can bring. You never want to sign anything you don't understand. If it's all gibberish and jargon, know that help is at the ready from the team at MoneyTalks. You can use their free helpline even anonymously if you like at first – chat online, call 0800 345 123 or text 4029 today to get started.
Sometimes you may have to, but here's the thing: paying the minimum means you'll pay the maximum in interest! (Unless you default and miss repayments entirely, in which case it will get even more expensive.) So as a rule of thumb, you always want to pay more than just the minimum. For every dollar you pay above that, you are cutting down your interest costs and reshaping the debt in your favour. Aim to pay more than the minimum to get on top of your debt – you'll ditch it that much quicker! Here's our guide to getting out of debt fast.