Getting out of debt.

The mechanics are simple even when the doing is hard. List every debt with its balance and interest rate. Keep making minimum payments on all of them. Then throw every spare dollar at one target debt until it’s gone, and move to the next.

Two things speed it up. Cutting spending frees up more to attack with. Reducing your interest rate, through consolidation or by negotiating, means more of each payment hits the balance rather than the interest.

The step people miss is stopping the inflow. Paying down a credit card while still using it is exhausting and doesn’t work. Freeze it, cut it up, remove it from your phone.

If your debts are unmanageable rather than just annoying, jump ahead to the free help question. There are formal options and you don’t have to work it out alone.

Compare the interest rate on the debt to what you’d realistically earn by investing. Paying off a debt charging 20% is a guaranteed 20% return. No investment offers that reliably.

So the usual order is: build a small emergency buffer first, maybe a thousand or two, so you’re not forced back onto the credit card by the next flat tyre. Then attack high-interest debt hard. Then build the buffer up properly and start investing.

Low-interest debt is a genuine judgement call. A student loan at zero percent or a mortgage at a modest rate doesn’t need the same urgency, and investing alongside it can make sense.

One exception worth knowing: if your employer matches KiwiSaver contributions, that match is usually worth capturing even while paying off debt. It’s an immediate return you can’t get anywhere else.

Consolidation rolls several debts into one loan with one payment. It can genuinely help, and it can also quietly make things worse.

It helps when the new interest rate is meaningfully lower and the term isn’t stretched out too far. One payment is easier to manage than five, and less likely to be missed.

It backfires in two common ways. Stretching a five-year debt across ten years lowers the monthly payment while increasing the total interest you pay. And clearing your credit cards without closing them leaves you with a loan plus empty cards, which is how people end up worse off within a year.

Check the total cost over the full term, not the monthly payment. And read the fees.

The avalanche method targets the highest interest rate first. Mathematically it’s cheaper and you’ll be debt-free sooner.

The snowball method targets the smallest balance first. You pay slightly more overall, but you clear a whole debt quickly, which feels good and keeps you going.

Research on actual human behaviour tends to favour the snowball, because the method you stick with beats the method that’s optimal on paper. Momentum is worth real money if it stops you giving up in month four.

If your highest rate also happens to be your smallest balance, you don’t have to choose. Plenty of people run a hybrid: clear one small debt for the win, then switch to attacking rates.

Start by finding out what rate you’re actually paying. Credit card rates are typically far higher than other borrowing, and paying only the minimum can keep you on the hook for years.

Then, in order. Stop using the card. Pay more than the minimum, ideally a lot more, and keep the payment fixed rather than letting it shrink as the balance falls. Look at whether a lower-rate option is available, such as a balance transfer or a personal loan, and check the fine print on when the low rate ends.

Ring your bank. People underestimate this. Banks would generally rather restructure than watch a debt go bad, and hardship options exist.

If minimum payments alone are a struggle, that’s a signal to get free help rather than to try harder.

Not necessarily, but it affects how much you can borrow. Lenders look at your income against your existing commitments, and every repayment reduces what’s available for a mortgage.

Credit cards get treated harshly. Many lenders count a percentage of your credit limit as a commitment whether you use it or not, so a card with a large limit and a zero balance can still cut your borrowing power. Closing or reducing unused limits often helps.

Buy now pay later arrangements and personal loans also show up. So does your repayment history.

Missed payments and defaults on your credit file are the bigger issue. Those stick around and lenders take them seriously.

If a mortgage is the goal, tidying up debts and limits six to twelve months beforehand makes a real difference. Talk to a mortgage adviser, since that’s their area rather than ours.

Free, confidential, no judgement, and genuinely good.

MoneyTalks is a free national helpline staffed by financial mentors. They’ll talk through your situation, help you build a plan, and can contact creditors on your behalf. Phone, text, email or live chat.

FinCap supports a network of local financial mentoring services around the country, including in Christchurch. Face to face if you’d prefer that.

Citizens Advice Bureau offers free information and can point you to the right service.

These services are funded to help people, not to sell them anything. If debt is keeping you awake, calling one of them is the single most useful thing you can do this week.

These are three formal insolvency options administered in New Zealand. Which one fits depends on how much you owe, what you own and what you can afford to repay.

A No Asset Procedure is for people with no realisable assets and debts within a set range who can’t afford to pay anything. It typically runs about a year, after which qualifying debts are written off.

A Debt Repayment Order suits people who can pay something but not everything. You repay an affordable amount over a period, usually up to three years, and the remaining qualifying debt is cleared.

Bankruptcy is the most serious option, typically lasting three years, with significant restrictions on running a business, borrowing and travel.

All three go on a public register and affect your credit for years. Some debts, like child support and court fines, generally aren’t wiped by any of them. Talk to a financial mentor before choosing, and check current thresholds on the Insolvency and Trustee Service website, since they’re adjusted from time to time.

In New Zealand, defaults and most negative credit information generally stay on your file for around five years from the date they’re recorded. Bankruptcy and insolvency information is typically held longer.

Paying a default doesn’t remove it. The record usually updates to show it’s been settled, which lenders view more favourably than an unpaid default, but the entry remains until it ages off.

You’re entitled to a free copy of your credit report from each of the main credit reporting agencies. Worth requesting one, because errors happen and you can dispute them.