Struggling with debt? 3 proven ways to take action *today*

Posted October 2016

debt options

Consolidation, settlement, or management? It's time to ditch your debt!

Do your debts have you feeling hopeless? 

If so, you're not alone:

Any Kiwi will tell you that no once they get going, debts tend to snowball, and snowball fast! So if you find yourself snowballing too, just remember that this hopelessness doesn’t mean your situation is hopeless.

So what are these options and which one is right for you?

Today, we’re exploring the pros and cons of the 3 major ways Kiwis can tackle their debts:

By the end of this post, we’ll have answered your most pressing questions, including:

  • What is debt consolidation, management, and settlement? 
  • How do they compare?
  • Which option will help me live my best financial life?

To kick things off, let’s take a look at debt consolidation...

Option #1: Debt consolidation

debt consolidation

Whether you have a single personal loan or a wallet full of maxed-out credit cards, debt consolidation is regarded as the go-to solution for Kiwis struggling with debt.

No wonder we’ve written so much about how this process works in the past!

Through consolidating your debts, you'll make your daily financial life that much easier by:

  • Cutting down on the number of creditors you have to manage.
  • Reducing the number of monthly payments you make to just one.

From credit cards to car and vehicle loans; unsecured finance to secured finance, a consolidation loan allows you to combine multiple different types of debt. You'll also avoid the risks associated with other solutions which we explore in more detail below.

For these reasons - and many more - loans for consolidating your debt remain the safest, easiest, most popular option for New Zealanders wanting to live a debt free life.


  • Reduce your late fees, charges, and monthly repayments.
  • Deal with the one creditor and the one monthly repayment.
  • Pay a lower interest rate and pay off your debts that much quicker. 
  • Improve your credit score by paying off numerous outstanding debts in full.
  • Take back control of your financial life and become the boss of your debts.


  • Consolidation is seen as a 'hard check' against your credit, so your credit score might suffer in the short term.
  • The process will backfire if you fail to spend responsibly, don't cancel your credit cards, and continue to rack up debt.

Option #2: Debt management

debt 2

Going it alone in life can be tough, and managing your finances is no different.

Add ‘managing your debts’ to this equation, and life suddenly becomes that much more hectic.

With so much to juggle, it can be difficult to know what your next step should be. And when you do have time, how do you know you’re making the right decisions? It can be a stressful time for any Kiwi.

This is where debt management comes in.

Debt management (also known as credit counseling) sees you enlisting the help of an individual or team to work on your behalf with creditors - that is, the people you've borrowed money from - to negotiate a better deal on aspects of your debt, including:

  • Interest rates
  • Minimum monthly repayments
  • Fees and charges

If you're still unsure, here’s what this means for you in practical terms:

Every month, you'll send a payment to your debt manager. Once received, they'll then pay your debts for you. This process cuts out the hassle, slashes the number of payments you have to make, and frees you up to better spend your time elsewhere.

However, this does beg the question:

Why wouldn't I just call the creditors and do this myself?

The truth is that many New Zealand creditors have special arrangements in place with debt management firms so that they can offer reduced interest rates and repayments if you sign on the dotted line. 


  • Negotiate a better interest rate and a lower monthly repayment.
  • Gain access to expert advice that can help you improve your current financial situation.


  • Debt managers come at a cost, which can be difficult to meet if you’re already struggling to pay off your debts.
  • There’s no guarantee that a debt manager will be able to negotiate a better deal, so you could be left in the same place as when you started.
  • Many debt managers will have creditors close your accounts, which will negatively impact your credit score.
  • Creditors could change the status of your loan from ‘Paid’ to ‘Settled’, which indicates to other creditors that a special arrangement was made and that you didn’t repay your loan in full as originally agreed. This could leave you looking financially unreliable in the eyes of future creditors.

Option #3: Debt settlement

debt 1

Debt settlement can be a long, drawn-out, complicated process. 

Here’s how it usually plays out:

Rather than make regular payments towards your debt, a debt settlement company will have you deposit funds into one of their accounts instead. The company will then use these funds as leverage to negotiate a one-off, lump-sum payoff with your creditors that is, ideally, less than the outstanding balance owed.

But like most things in life, settlement doesn’t always go to plan.

It's the riskiest of all the options we've explored today because it's usually the penultimate step before declaring Bankruptcy. There are a few reasons for this:

1. You’ll be forced to default on your debts

Debt settlement companies will ask you to default on your debts. That’s right! They’ll ask you to purposely stop making payments to your creditors for as little as a few months or as many as a few years to gain the upper hand at the negotiating table.

2. Multiple debts multiply the risk factors

Debt settlement becomes that much trickier if you owe money to multiple creditors. How so? Because you’ll need to repeat this process for each one. Remember, what works with one, might not work with another.

3. There are no guarantees

Debt settlement isn’t a ‘one size fits all’ solution. Far from it, in fact! There’s no guarantee that the creditor will accept your offer. As the process doesn't press pause on interest, late payment fees, or other penalties, you could be left in a far worse position than you started.


  • Debt settlement firms may be able to negotiate down the amount of debt you owe.
  • Settlement will have a lower impact on your credit score than filing for bankruptcy.
  • It can help you avoid asset liquidation, which is often associated with bankruptcy


  • It’s a very risky option, which can leave you in a worse position than you started.
  • The amount of debt that is ‘forgiven’ could be considered as income, which will see you paying income tax on any savings you make. 
  • Interest, fees, and penalties will be added to the amount you owe during the settlement process.
  • The average time for debt settlement is 2-3 years, which means 2-3 years of fees, interest, and added penalties.
  • Your credit score will suffer, as skipping payments, defaulting on loans, and not paying your debts in full will all be recorded in your report.
  • Debt settlement companies usually base their fees on the portion of the balance that was settled, which is often as much as 20%. For example, if you save $10,000, You’ll be paying $2,000 in fees.
  • Debt settlement requires that you have a large sum of cash available out of the gate to give you power at the negotiating table, which isn’t a viable reality for many New Zealanders already struggling with debt.
  • Creditors can refuse! That’s right: lenders and creditors are not obligated to accept the terms brought to the table and may reject it outright.
  • If the settlement process fails, any new charges, fees or interest will remain.

You have the facts, so which is right for you?

In the majority of cases, New Zealanders just like you opt for the safety and security of debt consolidation. Not only is it largely risk-free, it also boasts numerous benefits (say hello to your new and improved credit score, for one!), cuts down on the stress, and cuts out the paperwork.

It doesn’t get better than that.

If you are considering debt settlement or management as alternatives, just be conscious of the risk factors involved before you proceed. There's a very real chance you could end up financially worse off, which is why when push comes to shove we recommend debt consolidation time and again.

No matter what choice best fits your finances, it's never been easier to start managing your debts. 

Want to know your options?

Try our personal loan calculator.

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The article published on this page is not financial advice and should not be relied upon as such. The opinions published in this article is not those of Unity Credit Union.