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?

With the cost of living rising all around us, how best to avoid taking on debt?

With costs creeping up and inflation affecting us all, it’s easy to see how we might end up borrowing to make ends meet. Payday loans, credit cards, and especially Buy Now, Pay Later apps like Afterpay, Laybuy or Zip can spiral out of control though. We need to find better alternatives to get better results! If you find yourself going into debt for everyday items, here are some ideas.

Do I pay down debt first or get an emergency fund going?

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

How many Buy Now, Pay Later deals can I have going at one time?

A typical limit with Buy Now, Pay Later is up to $1,500, and you can borrow with more than one 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 Buy Now, Pay Later options like Afterpay, Laybuy or Zip.

Can debt affect my mortgage application?

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

Which debt should I pay off first? / I’m in debt and don’t know where to start. Do I focus on just one or all of them at once?  

Aiming to be debt-free? It’s the high-interest debt that hurts most: payday loans, credit cards, store cards, car loans. That’s what we’re after first. 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. And remember you’re not alone in this: help is at the ready. Reach out to the team at MoneyTalks, even anonymously, on 0800 345 123, or text 4029. 

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How do I get rid of my debt?

We need to kōrero about the D word! The longer you keep your debt, the more expensive it gets, which can be stressful and drag you down. Imagine how good it would feel to be debt-free! Here’s the quickest way out.

Learn more about debt and loans

Still wondering about debt and loans? We’ve put together some resources to help answer your questions.

Still wondering?

If you’d like to discuss your own situation (even anonymously) or need further advice, contact MoneyTalks.

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