Debt has become part of everyday life. Many of us start borrowing at university with a student loan, or buy our first car, and then just get used to having overdrafts, credit card balances and personal loans. We may add a home loan to all this. Have you got to a point in life where you’ve decided your debt needs to disappear? Maybe you want to go on your OE, get a good credit rating to buy your first home, or even retire debt-free. Debt can be hard to shift, so here are some ideas to get you started.

Assess the situation

How bad is the problem? Use a calculator or spreadsheet to add up the numbers. Work out exactly how much debt you have – and how you got into this situation. The more honest you are with yourself, the better.

Create a strategy

Work out what you can realistically afford to repay each week, fortnight or month. ‘Realistic’ is the key word. Don’t be too ambitious, or you’ll fail. Then choose which debt to pay off first. Usually that means tackling the debt with the highest interest first, to stop the debt mounting up. However, you might be the type of person who finds it psychologically easier to pay off smaller debts first, to feel as if you’re getting somewhere. This is called the ‘debt snowball method’ and works well for some people. Whichever method you choose, make minimum payments on all your other debts at the same time, so you won’t face further interest or penalties.

Write a plan

Setting goals and writing them down really does work. Try creating deadlines for when you plan to pass certain milestones in your journey to becoming debt-free. Diary those dates to check back in and see how you’re doing.

Consider debt consolidation

Debt consolidation means rolling all your debts into one, and just tackling that one total. It can be a good thing. But be very wary. The downsides include the fact you may be paying off the debt over a longer time, which will actually cost you more in interest. The other downside of many debt consolidation loans is that you might pay fees to get out of your old loan – and then pay more fees for the new one. Ouch.

Use repayment tools

Responsible lenders have tools or products that help you on your journey. That might be something simple, such as setting up an automatic payment, so that your debt repayment comes out of your pay before you start spending. If you can combine an automatic payment with a bank account that allows you to ‘pay split’, even better. These accounts automatically divide your salary into different accounts, to keep your savings separate from your spending money. If you have a mortgage, you might be able to automatically increase your repayment every year. Even a few dollars a week extra can take years off your mortgage and save a lot of money. With debt, small changes can make a big difference.

Tame your brain

Debt repayment isn’t just about dollars and cents. There are many psychological traps we all fall into. A lack of self-control or an inability to stay focused on a goal stop many Kiwis from paying off their debt. Understanding what your brain is doing and setting up little nudges to keep you on the straight and narrow really helps.

Say no to more debt

If your goal is to be debt-free, make lifestyle changes to stop yourself borrowing more. Get the scissors and cut up your credit cards. Instead of borrowing, look for ways to free up more money to cover your needs. You could take your lunch to work, put a limit on weekly spending for you and your kids, or vow not to upgrade your car for the next few years. Whatever you do, take baby steps. Get help You can get help from free budget advisers in your area. Check out the directory at www.moneytalks.co.nz, run by FinCap. Sorted.org.nz also has some great tools. Another option is to join a credit union, which can also help with advice and structuring your accounts to pay off the debt.

Published 25 November 2019

This article does not contain any financial advice and has not taken into account any particular person’s circumstances. Before relying on it, we recommend you speak with a financial adviser. This story reflects the views of the contributor only. Content comes from sources that we consider are accurate, but we do not guarantee that the content is accurate.