7 ways Kiwis can live debt free in 2022 (updated!)
Posted February 2018 by Melissa Abraham-Smith
Leave your debts behind this year with our top tips
Here’s something that might not surprise you:
According to the NZ Herald, New Zealand’s household debt level ‘...is one of the highest in the developed world compared to the size of our economy’.
Just think on that for a moment.
That’s an awful lot of debt.
That’s also a lot of stress carried by the average New Zealander - that’s you! - day-in, day-out:
- Medical bills?
- Natural disasters?
- Other financial emergencies?
Most Kiwis face a high cost of living and unexpected expenses like these on a daily basis. But while debt may feel like just another inevitability, it doesn’t have to be. In fact, with the 7 steps we're sharing today you can work towards living a debt-free life in 2018!
- How to start repairing your rocky relationship with money.
- Why honesty really is the best financial policy.
- How to make a little more without spending a lot more time doing so.
- Why it’s time to take stock and consolidate your debts.
- The #1 reason you need to swap out your credit cards for cash.
- Why you should make the most of KiwiSaver.
- How to create a budget and track your spending.
Let’s kick things off with how you really feel about money…
1. Repair your broken relationship with money
Kiwis interact with money on a daily basis.
You see it every day!
If you hung out with someone this long, you’d expect to get along pretty well. So why do so many Kiwis still have an ‘It’s Complicated’ relationship with money? You see, the way you spend money is often a mask - or a symptom - of a deeper problem:
- Maybe you indulge in a little retail therapy on a bad day?
- Or perhaps the mere thought of it incites anxiety or panic?
These unhealthy financial relationships are far more common than you might think.
In fact, a lot of people use money as a way to feel better in the short term, which in turn sabotages their financial happiness for the long term.
Like any relationship, things can get better if you’re willing to put in the work.
So sit down and examine the status of your relationship with money.
- Throwing it away frivolously?
- Spending it on the right things?
- Using it to cope with larger issues?
It’s true that we all deserve nice things.
But accumulating debt for all the wrong reasons is a vicious cycle you can break.
2. Honesty is the best financial policy
We bet you could find a bunch of reasons to make that next big purchase.
It might sound a little like ‘I definitely need this new…’ or ‘This will be a good investment because…’. These arguments sound great in the moment, but they’re also a slippery slope to yet more debt.
So ask yourself this:
Have you ever used any of these common phrases?
- “I’ll start saving when…”
- “I don’t earn enough to save…”
- “Once I’ve won the lottery!”
- “I’ll start paying my debts when…”
- “Everyone has debt! It’s normal…”
Chances are you’ve uttered more than a few of them over the years.
If so, there’s a chance you could be avoiding the realities of your financial situation.
Acknowledging this issue is the only way to move forward, making asking for help and living a life that's free from debt that much easier.
3. Earn more from what you’re doing
‘I don’t earn enough to save or pay off my debt’ may sound like an excuse.
Unfortunately, it's actually a valid concern for many Kiwis.
Everyday expenses are difficult enough, let alone the pressure of scraping together extra money to pay towards outstanding debts. The easiest answer? Make more money, of course!
Some things are easier said than done, and making more money tends to be one of them.
Consider a few of the following ideas:
- A pay rise or promotion - If you’ve been waiting on a pay rise, promotion, or a better-paying position, now’s the time to make a move.
- Turn a passion project into extra pay - Do you have a hobby? Maybe friends or family always compliment you on those craft projects? “Oh, you’re so good at X! Someone would pay money for those!” This year, stop laughing it off as a compliment. Instead, take up their advice and make it happen. Turn your hobbies into moneymakers via TradeMe, Etsy, or local Facebook groups.
4. Take stock and consider consolidating your debts
Sometimes the hardest things in life are also the scariest.
Facing your debts? That’s definitely one of them.
It can be a difficult thing for many Kiwis to do. It’s also the only way to overcome them. If you don’t know how much you owe, you’ll never be able to pay them off effectively. Long story short? You need a plan.
1. Add up your debts
- Gather together any and all paperwork relating to your debts such as credit card statements, overdue utilities, or outstanding personal loans.
- Use this information to add up exactly how much you owe.
- Write this figure down, and keep it somewhere safe but visible. This is the target you’re working towards, so it helps to keep it at the forefront of your mind!
2. Decide on a plan of attack
Once you know how much debt you’re carrying, you can make informed repayment decisions.
There are a number of ways you can do this.
These options include:
- The Debt Snowball method
Some people swear by the ‘snowball’ method, which sees you targeting your smallest debts first, before picking up speed as you work towards paying off your largest debts last when you’re in a position to do so.
- Debt management or settlement
Other people rely on debt managers or settlements to see them through the process. Before you dive in, be sure to read up on the risks involved in these two debt-busting options. What works for some, might not work for others.
- Debt consolidation
A debt consolidation loan is the easiest and lowest risk option of them all, seeing you paying off all of your debts with a new loan. Whether you use secured finance or unsecured finance, consolidation cuts down on the number of payments you have to manage and saves you money thanks to a low rate of interest on this single new loan.
Now you know how you’re going to pay off your debts, let’s look at ways to speed up the process!
5. Cut up your credit cards in favour of cash
We all know the drill:
Credit cards are a great modern convenience.
They also make it that much easier to fall into debt without even noticing it.
Sure, they’re a great way to pay for big-ticket items, but it’s all too easy to use your credit card for smaller, everyday expenses. A $50 grocery bill here. A $15 movie ticket there.
Over time, these small purchases all add up.
Before you know it, you’re in serious debt.
Not too long ago, a credit card was a requirement if you wanted to shop online.
Nowadays? Things have changed. In fact, many financial institutions offer debit cards that include the same functionality minus the downsides. That means there's no excuse to hold onto yours if you no longer need it.
Here’s a few easy ways to start reducing your reliance on credit cards:
- Toss your credit cards in the trash compactor - Leave the credit cards at home or, better yet, cut them up and throw them in the bin.
- Swap the cards out for cash - Only use EFTPOS or, better still, cold hard cash. Not only will you bring back that feeling - and accountability - of spending your own money, you also remove the temptation to ‘Just throw it on the credit card!’.
6. Sort out your KiwiSaver
It’s simple to set up.
What’s more, it can help you out whether you’re buying a home or settling down for retirement.
What are we talking about? KiwiSaver, of course!
If you’re already a member, take the time to consider the fund you’re in and whether it’s time to change things up. And if you’re not? Sign up. While you're there, don’t forget to take advantage of government contributions like The Big Five Hundy.
It’s pretty much free money.
Who can say no to that?!
7. Create a budget and track your spending
In 2010, Interest reported that ‘New Zealand households are still spending more than they earn’.
This raises some interesting questions, like:
- Do you know how much your or your family spend?
- How about what that money is being spent on?
- Of that spending, how much is on unessential items and services?
No, we're not saying you can't enjoy a night out or a great meal.
What we are saying is you might be surprised how quickly these small expenses add up.
So grab your pen, paper, and calculator, and start answering the questions we outlined above. Draw up a budget, work out how much is coming in - and, for that matter, how much is going out - and see if there are savings to be made.
That'll put a few extra dollars in your back pocket or, better still, a high interest savings account.
To get your budget together follow these steps:
- Calculate your income & expenses
Sit down and work out:
- Your overall income.
- Your total expenses, including:
- Takeaways and eating out
- Supermarket and grocery items
- Utility bills including internet, Sky and Netflix
- Tally up the numbers
By tracking your income and expenses, you'll identify how much money you're making, how much you're spending, and exactly what it's being spent on.
- Ask yourself the following questions
- "Which expenses need to stay?’"
- "Which am I happy to give up?’"
- Use these savings to slash your debts
Put the spare cash towards paying off your debts that much quicker and save money on interest.
Struggling to save? Try these 3 ideas
- Do you have a Netflix or Spotify account? Cancel any subscriptions you no longer need.
- Fruit and vegetables ending up in the bin? Get practical and search sites like Taste and Delish for great recipes that won't break the bank.
- Costly habits? Giving up smoking with the help of Quitline, for example, will improve your body's health as well as your budget's.
Make living life debt free one of your New Year’s resolutions
Debt has a way of weighing you down.
But while it may be an inevitability, you don't need to give up and give in.
Instead, make living a debt-free life one of your New Year's resolutions and stick to it!
With a little commitment and some hard work - plus the steps we've outlined above - you'll soon take back control of your financial life and be rid of your debts once and for all.
Want to know your options?
Try our debt consolidation calculator.