Debt Problems
Our Guide to What to Do and Where to Get Help
Updated January 2018
Debt always has a solution, even if the size and terms of a debt feels overwhelming. Our advice is to deal with debts as early as possible and never ignore them. It may not feel like it, but you can be debt free.
Debt is more than just a money issue. Debt affects your entire life. Solutions to debts vary, but the goal of every suggestion is to get you out of the debt that is causing you stress. In this guide we offer a way to best manage debt issues before they become serious. We recommend for anyone in a situation of debt crisis to contact a local advisor, such as the Citizens Advice Bureau who can provide tailored solutions and advice for every situation.
Debt is more than just a money issue. Debt affects your entire life. Solutions to debts vary, but the goal of every suggestion is to get you out of the debt that is causing you stress. In this guide we offer a way to best manage debt issues before they become serious. We recommend for anyone in a situation of debt crisis to contact a local advisor, such as the Citizens Advice Bureau who can provide tailored solutions and advice for every situation.
What is Debt Crisis?
- Debt Crisis is a situation when you are unable to pay all basic monthly outgoings, for example mortgage or rent, electricity bills and credit card/hire purchase minimums
- When your personal debts (excluding a mortgage) such as personal loans, hire purchases, car finance etc exceeds your annual after-tax income.
Debt is ugly, but it can be solved
Having debts exceeding what you earn in a year is a path to major stress, although it may take some time before you feel it. Not being able to pay monthly bills is immediately stressful, and because personal debt tends to have higher interest rates and repayment amounts, the effects of a debt crisis are more severe for those with high debts and low incomes.
Having debts exceeding what you earn in a year is a path to major stress, although it may take some time before you feel it. Not being able to pay monthly bills is immediately stressful, and because personal debt tends to have higher interest rates and repayment amounts, the effects of a debt crisis are more severe for those with high debts and low incomes.
Are you hiding debts?
It’s perfectly Kiwi to not want to talk about money with friends and family, but you can be honest with yourself about your debts. The sooner you face up to your debts, the sooner you can pay them off. Our advice is simple – add them all up and know exactly what you owe.
If you’re hiding debts from a loved one that will affect them financially, the best thing to do is be completely honest. Telling someone does not share the burden, but it does help you to put together an action plan to get through the debt.
Are your debts related to family or health problems?
Debt is often the result of a personal issue, and being in more debt causes stress and depression when it seems too much to handle. If this sounds like you, help is a phone call away - the Samaritans have specific help for money worries and depression.
It’s perfectly Kiwi to not want to talk about money with friends and family, but you can be honest with yourself about your debts. The sooner you face up to your debts, the sooner you can pay them off. Our advice is simple – add them all up and know exactly what you owe.
If you’re hiding debts from a loved one that will affect them financially, the best thing to do is be completely honest. Telling someone does not share the burden, but it does help you to put together an action plan to get through the debt.
Are your debts related to family or health problems?
Debt is often the result of a personal issue, and being in more debt causes stress and depression when it seems too much to handle. If this sounds like you, help is a phone call away - the Samaritans have specific help for money worries and depression.
Quick questions
Q: I am in a Debt Crisis. What do I do?
A: Accepting you have a debt crisis is an excellent start, and reading our guide right now is fantastic. Addressing your debts rather than ignoring them is the first step to solving them.
Step 1: Read our Debt Checklist
Our Debt Help checklist (below) is designed to prevent Kiwis getting into debt crisis, but it will still be relevant for those in a debt crisis situation. We recommend reading it and noting anything that is relevant.
Step 2: Get Debt Counselling
New Zealand has many great counselling services available, which we list below. Contact them directly to set up a free meeting. Debt counselling assists with applying for hardship relief, negotiating with creditors and applying for bankruptcy if need be. There are a number of consequences of declaring bankruptcy, which we outline below.
Q: I don’t have a Debt Crisis, but I may have a Debt Problem. What do I do?
A debt problem is quite common in New Zealand households and easily managed with some initiative. We recommend going through our debt checklist in detail.
Q: I am in a Debt Crisis. What do I do?
A: Accepting you have a debt crisis is an excellent start, and reading our guide right now is fantastic. Addressing your debts rather than ignoring them is the first step to solving them.
Step 1: Read our Debt Checklist
Our Debt Help checklist (below) is designed to prevent Kiwis getting into debt crisis, but it will still be relevant for those in a debt crisis situation. We recommend reading it and noting anything that is relevant.
Step 2: Get Debt Counselling
New Zealand has many great counselling services available, which we list below. Contact them directly to set up a free meeting. Debt counselling assists with applying for hardship relief, negotiating with creditors and applying for bankruptcy if need be. There are a number of consequences of declaring bankruptcy, which we outline below.
Q: I don’t have a Debt Crisis, but I may have a Debt Problem. What do I do?
A debt problem is quite common in New Zealand households and easily managed with some initiative. We recommend going through our debt checklist in detail.
The Debt Checklist
Our checklist below has been written to make you aware of your entire situation so you can tackle your debts with force. It is our aim that by using the guide you can reduce the cost and size of your debts. We recommend reading it and making notes where a section applies so you can work to a debt free existence.
Our checklist below has been written to make you aware of your entire situation so you can tackle your debts with force. It is our aim that by using the guide you can reduce the cost and size of your debts. We recommend reading it and making notes where a section applies so you can work to a debt free existence.
Subsection Title
Prepare a Budget
The majority of people with debt problems do NOT have a budget. Only by knowing what you spend and where you spend it can you have a chance of cutting back. Download our BUDGET PLANNER which unlike most other budgets actually works (and works hard) to keep your finances healthy.
Full info: Free Budget Planner and the Stop Spending guide.
Full info: Free Budget Planner and the Stop Spending guide.
Earning under $XX and have children? Look at working for families and other entitlements.
Any family with income under XXXX can apply for may be entitled to some form of benefit. You can do a quick check-up for free in just five minutes.
Full info: WINZ Checkup for working people
Full info: WINZ Checkup for working people
3. Get Help with Your Mortgage from Your Lender
New Zealand banks offer financial hardship and debt holiday…..
information on repossession and rent arrears.
information on repossession and rent arrears.
4. Cut Down the Cost of All Your Debt
You’re probably paying too much right now on your current debt. The best way to manage debt involves having the lowest interest rate, as your debt is immediately cheaper and easier to repay. Loan consolidation deals are common, and we recommend considering them if the interest rate offered is lower than your current interest rate.
Use Balance Transfer Credit Cards
Kiwis love spending up on credit cards, but many of us pay more than we need to on interest. If you are struggling to pay off your bill every month, the interest bill is costing you big. Many banks offer low fee credit card balance transfer deals which can last up to 12 months and then fix at 5-7% for the life of the balance. If you have a $10,000 debt, switching to a new card could save you up to $2,000 a year! It’s essential to cancel the old credit card to prevent more debt building up.
Get a Cheap Personal Loan
A personal loan is suitable if your current debt costs are higher than the interest rates offered by personal loans. Best of all, personal loans require regular repayment which means you have a set timeframe for repaying the debt. This is different to credit cards which have no fixed time for repayment. The better your credit score the lower the interest rate.
But, if the banks are not willing to lend to you, consider a credit union or finance company. They may be a little more expensive than the banks but are significantly cheaper than payday loans.
But, if the banks are not willing to lend to you, consider a credit union or finance company. They may be a little more expensive than the banks but are significantly cheaper than payday loans.
Don’t Sit on Cash, Repay Your Debt
Any spare cash you have won’t earn much interest, but it will make a dint on your debt and interest costs. If you have spare money in your bank account, log in to internet banking and transfer it to your credit card or loan balance. Even $50 and $100 payments make a difference.
Make a Financial Hardship Application to the Company You Owe a Debt To
The Credit Contracts and Consumer Finance Act (CCCFA) allows any person with a credit contract (i.e. a debt) to apply to the lender for hardship relief when experiencing an unforeseen change in personal circumstances. This can include:
It’s law that every lender must consider an application. The contract can be changed under the Hardship provision to allow:
When can I make a financial hardship application?
In our view, you should do it as soon as possible if you know you will struggle to pay one or many debts. Importantly, you can’t apply for hardship if:
It’s worth noting you can only make one application every four months, but there is no limit on how many debts you can apply for, so it is best to make the applications all at once to any debts you are struggling with. Full details can be found on the Commerce Commission's website.
- A hardship that couldn’t reasonably be seen coming, such as illness or injury, loss of employment, the end of a relationship, or death of a partner or spouse
- And, as a result of that hardship, the borrower cannot reasonably meet their debt repayments, and
- The borrower believes they would be able to meet their debt repayments if the contract was changed as allowed under the CCCFA.
It’s law that every lender must consider an application. The contract can be changed under the Hardship provision to allow:
- Smaller repayments and/or
- A debt repayment holiday (i.e. taking time off from making repayments until your finances improve)
When can I make a financial hardship application?
In our view, you should do it as soon as possible if you know you will struggle to pay one or many debts. Importantly, you can’t apply for hardship if:
- Your debt has been in default for two months or more
- You have been in default for two weeks or more after receiving a repossession warning notice or Property Law Act notice, or
- You have failed to make four or more consecutive debt repayments on their due dates.
It’s worth noting you can only make one application every four months, but there is no limit on how many debts you can apply for, so it is best to make the applications all at once to any debts you are struggling with. Full details can be found on the Commerce Commission's website.
Make an Application for Financial Hardship Simple with our Templates
To have the best chance at a successful application, we have put together two files. The first is a template letter for making an application of Financial Hardship, and the second is an Excel spreadsheet to calculate a summary of financial position (i.e. your income, debts, assets etc). You can complete BOTH in around 30 minutes to one hour, and MoneyHub readers find these immensely helpful in structuring their application and ensuring all the important bits are mentioned.
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Financial Hardship Applications
Many companies have application forms available. While we can't list them all, we've included a number to indicate the range of options available. To find them, simply Google the name of company you have the debt with and "Hardship Application" to see if they have forms. If they don't, they still MUST consider your Hardship application, and it's best just to use our templates above.
Many companies have application forms available. While we can't list them all, we've included a number to indicate the range of options available. To find them, simply Google the name of company you have the debt with and "Hardship Application" to see if they have forms. If they don't, they still MUST consider your Hardship application, and it's best just to use our templates above.
Has your hardship application been declined?
Don’t panic. There is help available. Your local Community Law Centre can advise on re-applying and you can also go to the Disputes Tribunal. Our template above is New Zealand’s most comprehensive, so if you haven’t used it we recommend it for subsequent applications.
See the Commerce Commission's guide to a lender's obligation and your rights when making a financial hardship application.
Don’t panic. There is help available. Your local Community Law Centre can advise on re-applying and you can also go to the Disputes Tribunal. Our template above is New Zealand’s most comprehensive, so if you haven’t used it we recommend it for subsequent applications.
See the Commerce Commission's guide to a lender's obligation and your rights when making a financial hardship application.
Can you get help from the Government?
The Government offers loans and benefits which are an alternative to getting more debt.
Urgent Costs
Work and Income New Zealand (WINZ) offers benefits and interest free loans to Kiwis on low income levels needing essential items or services that you cannot pay for in a lump sum or don’t have the money for due to other essential costs. You do not need to be receiving benefits to apply. Urgent cost assistance helps with Food, Accommodation, Home repairs and maintenance, Power, gas and water bills or heating, Dental treatment, Glasses/Optical, Whiteware (eg, fridge, freezer, washing machine), Car repairs, Bereavement and Fire or theft. You do need to show assets of less than $1,000 (excluding essentials like a home or car). WINZ does includes bank, or things like a caravan or a second property.
You can apply with WINZ directly – income limits apply - look at the details and see if you qualify. Best of all, any repayments are set up to be dependent on what you can afford to pay.
But, demand is very high for these services and WINZ may not determine your needs to be “urgent” and may decline your application. However, it’s easy to apply and worth the effort.
Urgent Costs
Work and Income New Zealand (WINZ) offers benefits and interest free loans to Kiwis on low income levels needing essential items or services that you cannot pay for in a lump sum or don’t have the money for due to other essential costs. You do not need to be receiving benefits to apply. Urgent cost assistance helps with Food, Accommodation, Home repairs and maintenance, Power, gas and water bills or heating, Dental treatment, Glasses/Optical, Whiteware (eg, fridge, freezer, washing machine), Car repairs, Bereavement and Fire or theft. You do need to show assets of less than $1,000 (excluding essentials like a home or car). WINZ does includes bank, or things like a caravan or a second property.
You can apply with WINZ directly – income limits apply - look at the details and see if you qualify. Best of all, any repayments are set up to be dependent on what you can afford to pay.
But, demand is very high for these services and WINZ may not determine your needs to be “urgent” and may decline your application. However, it’s easy to apply and worth the effort.
Is Bankruptcy right for you?
Looking to declare bankruptcy is serious, and has long lasting effects on your financial freedom and ability to function in society. There are two options available. If you owe less than $47,000 in unsecured loans (excluding student loans, fines, penalties, and reparation orders etc) , you will likely qualify for a Debt Repayment Plan (or Summary Instalment Orders - SIO) which gives you extra time to pay back some or all of your debt — usually 3 years, though it can be more or less. You will have an appointed supervisor, who works with you to help pay back the debt. However, there are consequences of taking an SIO, which we summarise:
Applying for Bankruptcy
If you owe more than $47,000, you can apply for bankruptcy. Bankruptcy is the most severe option, and has wide-reaching consequences.
Bankruptcy usually lasts for three years from the date of application, and once you are declared bankrupt your creditors can't chase you for any included debt, or add penalties or interest to the debt you owe. If you have a student loan, this will also be cancelled. However, whatever assets you have will go towards paying debts - the Official Assignee has full control over your financial affairs and will sell anything you own (including your house or business). Your IRD number is cancelled, and you have limitations on overseas travel.
Next Steps
Making then decision to start a SIO or declare bankruptcy should not be taken lightly, and really should be the last option available.
- Your SIO status is on public record. While it won't be advertised, anyone can search and see your SIO status.
- Your credit rating is affected, which means it may be difficult to rent a house, do banking or get credit.
- Banks can close your accounts and utility providers (power, gas, phone, internet and insurance etc) have the power to cut you off or restrict what services they'll provide to you.
- Employers might think your insolvency is a risk to their business and may not want to employ you.
- Your partner – if you have joint services like banks and utilities, the provider can close the account so it is best to
- Joint debts – anyone you have joined debts with will be liable for the full debt
Applying for Bankruptcy
If you owe more than $47,000, you can apply for bankruptcy. Bankruptcy is the most severe option, and has wide-reaching consequences.
Bankruptcy usually lasts for three years from the date of application, and once you are declared bankrupt your creditors can't chase you for any included debt, or add penalties or interest to the debt you owe. If you have a student loan, this will also be cancelled. However, whatever assets you have will go towards paying debts - the Official Assignee has full control over your financial affairs and will sell anything you own (including your house or business). Your IRD number is cancelled, and you have limitations on overseas travel.
Next Steps
Making then decision to start a SIO or declare bankruptcy should not be taken lightly, and really should be the last option available.
Make an Appointment for Free Debt Counselling
The excellent National Building Financial Capability Charitable Trust has affiliated debt counselling branches all over New Zealand which provide free advice and debt support services. Services offered vary, but usually include:
Debt Crisis Help - assistance with a debt crisis intervention plan and debt repayment plan, enabling you to regain control of your cash-flow and financial situation. The services also includes communicating and negotiating with your creditors on your behalf.
One-on-One Budgeting - developing a personalised financial plan that is tailored to your specific circumstances, giving you the most out of your money and letting you move forward in life.
Ongoing Budgeting Assistance – regular appointments as well as creditor repayment plans and looking at your upcoming cash-flow needs.
Debt Crisis Help - assistance with a debt crisis intervention plan and debt repayment plan, enabling you to regain control of your cash-flow and financial situation. The services also includes communicating and negotiating with your creditors on your behalf.
One-on-One Budgeting - developing a personalised financial plan that is tailored to your specific circumstances, giving you the most out of your money and letting you move forward in life.
Ongoing Budgeting Assistance – regular appointments as well as creditor repayment plans and looking at your upcoming cash-flow needs.
Reddit Personal Finance NZ – Helping to Your Reduce Personal Debt
One comforting fact is that when it comes to personal debt, you are not alone. Debt levels are at record highs in New Zealand and most people have their own debt issue.
moneyhub recommends posting any debt question on the helpful Reddit Personal Finance NZ forum. You can post a confidential question and most often receive assistance and independent advice that aims to be helpful. Talking about debt is the first thing to put your issue in perspective and get you on the right track. Reddit contributors work to support Kiwis becoming debt-free, making them feel less alone. Be assured all details posted on Reddit are done so with complete confidentiality.
moneyhub recommends posting any debt question on the helpful Reddit Personal Finance NZ forum. You can post a confidential question and most often receive assistance and independent advice that aims to be helpful. Talking about debt is the first thing to put your issue in perspective and get you on the right track. Reddit contributors work to support Kiwis becoming debt-free, making them feel less alone. Be assured all details posted on Reddit are done so with complete confidentiality.
