I know I speak for just about the entire country (myself included) when I say that it’s been a tough couple of years for our finances - and it’s starting to show.
Cost of living increases and inflation are hitting everyone in the wallet. Supply issues due to the pandemic mean sometimes we have to pay more to get what we need - there just isn’t any other choice. On top of that, a lot of people miss work because they get COVID or have to care for others, and sometimes there aren't enough sick days to cover lost wages.
When you have been hit with one thing after another, it’s understandable to feel overwhelmed. You can’t figure out what to do, so you don’t do anything at all - but ignoring your finances only makes it worse. Rather than disappear, it snowballs into a bigger problem. But there are a few little things you can do to take control of your finances.
More Kiwis are missing payments
Unfortunately, this means some people are now failing to make payments. A July report from credit bureau Centrix revealed a 14% increase in the number of accounts in arrears compared to last year.
That 14% increase includes credit cards, personal and vehicle loans, and buy-now-pay-later schemes. Once you get behind on these payments, it gets harder and harder to dig yourself out, creating a cycle of debt.
Worryingly, more people are missing their car payments. Centrix manager Keith McLaughlin says that loans against cars and property are the last things people stop paying when struggling. The report indicates that the proportion of home loans with missed payments sat at less than one percent. This is good news as it indicates that financial stress hasn’t affected most mortgages (at least not yet).
If you have an account in arrears, or are dangerously close to missing payments, it is time to regain control of your finances before you find yourself buried.
5 things to do right now to take control of your finances
Start with small, simple steps. Once you take a step or two, you’ll begin to take back control of your finances and make steady, confident progress.
1. Seriously budget. Cut out all extras. You can add them back in later, but right now it’s time to tighten the reins and focus. Make every dollar count - a few dollars here and there may not seem like much, but it all adds up to get those late payments done and dusted.
Check your subscriptions. You can likely live without them for the short term and it is a small price to pay to get your debt under control.
Assess your transportation. With the price of petrol these days, it can save a lot. Can you walk or bike even some of the time?
Food is a major cost right now. Challenge yourself to see how much you can do with your weekly shop. There are free downloadable cookbooks of affordable seasonal meals from Love Food Hate Waste.
Check our list of 22 saving hacks and budgeting tips for more ideas.
2. Spend smart. It is critical to avoid debt traps that may seem like a good idea but can drag you even further into debt and make it really difficult to get yourself out.
Used wisely, buy now, pay later (BNPL) schemes can be a means of purchasing high-cost items without paying interest. But if you are struggling financially, they can set you up to continue to struggle and make your debt problem even bigger.
It might seem smart at the moment, but remember, you’re committing your future self to make payments. As we have seen, things outside of our control - like inflation, emergency expenses or sudden income loss - can make those future payments harder to make. Late and missed payments incur fees, increasing total debt. Over 40,000 people have missed at least one BNPL payment this year.
What is especially troubling is that more people are using BNPL schemes to access essential goods, indicating they are having trouble with finances already. One survey showed that 20% of BNPL users pay their instalments with credit cards, cancelling the benefit of interest-free credit and adding to longer-term debt problems.
3. Consider a consolidation loan. A consolidation loan puts all your debt into one account, so you have just one payment and one interest rate. The benefit to consolidating comes when you have high-interest debt. Any drop in interest rates will help you pay your debt faster and can potentially lower your payments now.
Say you have three credit cards with 28% interest and each is maxed out at $5,000. Making each card’s minimum payment of $250 a month, it would take you 28 months to clear the debt, and you would pay over $5,400 in interest.
Using Sorted’s debt calculator shows us that a lower interest rate would save money and time. If you consolidated those three credit cards into a loan at 12% interest and paid the same $750 each month, you would pay your debt off five months faster and pay just $1,820 in interest. Even if you only paid $600 a month, saving yourself $150 a month right now, it would take 31 months and you would pay just under $2,200 in interest. Smaller payments mean longer terms and a bit more interest, but if it keeps you from defaulting it might be worth it.
Of course, this all depends on getting approved for a loan. And consolidation isn’t a magic bullet. There are pros and cons. It is always best to get advice from a financial adviser to see if a consolidation loan is best for your circumstances.
It’s possible to consolidate your debt into your mortgage. Adding to your total mortgage to save you now might not affect your repayments by much and allow you to get rid of your debt. But it does mean you are using your home as security against your debts and making your mortgage cost more in the long term. Carefully weigh the benefits and consequences with an adviser to make the best moves.
4. Sort your KiwiSaver. It takes five minutes and a load off your mind. If you are already contributing to KiwiSaver, make sure you are getting the most out of it by being in the right fund. It can mean the difference of thousands of dollars later on. Your future self will appreciate the small effort to sort your KiwiSaver today.
We designed our Fund Finder quiz to make it easy to find a KiwiSaver fund that matches your goals, timeline, and values. Take the quiz and we’ll switch your fund - one simple step done!
Some might be wondering if you should take a ‘savings suspension.’ If you have been a contributing KiwiSaver member for over a year, you are able to temporarily stop contributions. However, your employer will also stop contributions (unless your contract says otherwise) and it may affect your eligibility to get the government contribution and other provisions like the First Home Grant (that’s because you have to be a regular contributing member for three years). Not to mention you miss out on any returns and the magic of compounding interest over time, so skipping a few months of contributing now can have a much bigger effect than you imagine later on. Seek advice beforehand so you know exactly what you are getting into.
5. Communicate. Finally, if you are struggling to make payments, talk to your lenders before it’s too late. You may be surprised at how willing they are to work with you to help you stay in good standing.
Talk to us
As always, the BetterSaver team is here for you. Get in touch with your financial questions, and we’ll help you get on the right path.
Your financial woes won’t go away overnight. But start with small steps in the right direction and before you know it, those small steps will have made a big difference.