Posted January 2017 by NZCU Baywide
According to the NZ Herald, New Zealand’s household debt level - that is, the amount of debt you, I, and every other New Zealander has - ‘is one of the highest in the developed world compared to the size of our economy’.
Think on that for a minute. That’s an awful lot of money, and an awful lot of debt. More than just pure numbers, that’s also a very real amount of stress that the average New Zealander - that’s you! - is forced to carry day-in, day-out.
You see, while you may pull out the credit card once in awhile (guilty as charged), others face unexpected expenses on a daily basis. Medical bills? Emergencies? Natural disasters? They’re all events we can go some way to planning for, but can’t always foresee.
Debt, like death and taxes, may feel like an inevitability, but it doesn’t have to be. If you’re carrying debts, it’s what you do from here on out that can make the biggest difference. So what can you do, exactly? Read on for the 7 ways you can take your first steps towards overcoming those debts, and live your life debt free in 2017.
1. Build A Healthier Relationship With Money
You interact with money on a daily basis. If you were around another person for that amount of time, you’d expect to have built a pretty good relationship by now, right? You see them everyday! And yet, many of us still struggle in our relationship with money.
You see, the way you spend money is often a mask - or symptom - of deeper problems. Do you spend it as a pick-me-up on a bad day? Does the thought of it incite anxiety or panic? These unhealthy relationships are more common than you might think.
This year, sit down and think about just where you and money are in your relationship. Are you spending it on the right things? Throwing it away frivolously? Using it to cope with larger issues? While this might make you feel better in the short-term, you could be sabotaging your future self.
It’s true, we all deserve nice things, but if you’re paying interest and accumulating debt for all the wrong reasons, you’re just continuing the vicious debt cycle. In 2017? You deserve better. It’s time to break the cycle!
2. Be Honest With Yourself
You can probably find any number of reasons to make that next big purchase, right? “I definitely need this new…”, or “This will be a good investment because...”. While they may sound good in the moment, being dishonest with yourself - and your money - is just another slippery slope to more debt.
So ask yourself: have you ever used any of these common phrases?
- “I’ll start saving when…”
- “I don’t earn enough to save…”
- “Once I’ve won the lottery!”
- “I’ll start paying my debts when…”
- “Everyone has debt! It’s normal…”
Chances are you’ve used more than one of these over the years. If so, keep reading so you can learn how build a budget and be more honest with yourself as to where your money should be going.
3. Get Paid For What You Do
Unfortunately, “I don’t earn enough to save or pay off debt” is actually a valid concern for many Kiwis. Everyday expenses can be hard to meet, let alone trying to scrape together extra to put away for the future, or to pay down debts.
The easiest answer is to make more money, but this is easier said than done, so consider the following ideas:
- A Pay Rise Or Promotion
Look into the chances of a pay rise, promotion, or a similar job that might pay better.
- Turn A Passion Into Extra Pay
Do you have a hobby? Friends or family always compliment you on those craft projects? “Oh, you're so good at X! Someone would pay money for those!”. In 2017, take up their advice and make it happen. Turn those hobbies into money makers via TradeMe, Etsy or Facebook groups.
4. Take Stock & Consolidate Your Debts
Sometimes the hardest things in life are also the scariest. Facing your debts? It can be a difficult thing for many to do. But it’s also the only way you’ll overcome them. When doing so, you want to work out how much money you owe, and then decide on the best way to start paying it off.
Long story short? You need a plan. Here’s how you create one:
1. Add Up Your Debts
- Gather together any paperwork relating to your debts. This could include credit card statements, any outstanding personal loans, as well as overdue utility or rent bills.
- Add up exactly how much you owe.
- Write this figure down somewhere, and keep it somewhere safe but visible. This is the target you’re working towards, so it’s always helpful to keep it at the front of your mind.
2. Decide How You’re Going To Pay Them Off
Now that you know how much debt you’re actually carrying, you can make an informed decision as to how you’re going to pay it off. There’s a number of ways you can do this. Your options include:
A. The Snowball Method
Some people use the ‘snowball’ method, which sees you targeting your smallest debts first, before picking up speed as you move towards narrowing down and paying off your largest debts last when you’re in a position to do so.
B. Debt Management Or Settlement
Others use debt managers or even debt settlement to see them through the process. When you compare these two options, both come with varying degrees of risk, and are more suited to individual situations where other methods don’t provide the necessary help.
C. Debt Consolidation
The easiest and lowest risk option for most is a debt consolidation loan, which simply sees you paying off all of your debts with a new loan. Whether you use secured finance or unsecured finance, this will cut down on the number of payments you have to manage, as well as saves you money as you often end up paying a far lower rate of interest on this single new loan.
Now you know how you’re going to pay off your debts, let’s look at a few ways to speed up the process:
5. Cut Up Your Credit Cards
We all know the drill: credit cards can be a great modern convenience, but they also make it that much easier to work your way into debt without you even noticing it. They can be used for big ticket purchases, but it’s all too easy to find yourself using your credit card for smaller, everyday expenses. A $50 grocery bill here. A $15 movie ticket there.
Over time, these small purchases do add up. And before you know it, you’re in serious debt
Like the smartphones in our pockets, credit cards have quickly become ubiquitous. But they don’t need to be. There was once a time when credit cards were required for any kind of online transaction, so it was easy to justify keeping one close at hand.
Nowadays? Many banks and financial institutions offer debit cards that include the exact same credit-card like functionality that lets you use these online, so you no longer have that need - or excuse - to keep them around.
Here’s a few easy ways to start lowering your reliance on credit cards:
1. Ditch The Credit Cards
Leave the credit cards at home or, better yet, cut them up and throw them in the bin.
2. Only Spend Money You Actually Have
Use your Eftpos or, even better, cold hard cash. That way you not only bring back that feeling - and accountability - of spending your own money, you also remove the temptation to ‘Just throw it on my credit card!’.
6. Sort Out Your Kiwisaver
If you’re in KiwiSaver already, then consider the fund you’re in, and if you’re not? Sign up! Once you’ve done so, make sure you’re taking full advantage of all government contributions like The Big Five Hundy. It’s pretty much free money. Who can say no to that?
7. Create A Budget & Track Your Spending
In 2010, Interest reported that ‘New Zealand households are still spending more than they earn’. Which raises some interesting questions:
- Do you know how much you or your family spend?
- Do you know what you spend that money on?
- How much of that spending is on actual necessities, and how much is on additional items and services that aren’t essential?
No, this doesn’t mean you need to eat nothing but stale bread and play charades in your spare time, but you’d be surprised at how many inconsequential extra expenses exist in your daily life. Expenses that can quickly add up but you wouldn’t necessarily notice were gone if you stopped spending the money.
Maybe you have a Netflix subscription, but you haven’t watched it in a few months because you’ve binge-watched everything it has to offer for now? Or maybe you’re on an internet plan with a quota limit you come nowhere near close to reaching each month? Or maybe you’re spending money on foods, fruits or vegetables that regularly end up in the bin?
These are all important questions that you should be asking yourself. Not only will you be more resourceful, but you’ll also be able to draw up a budget and save yourself a lot of money that you could be putting in your back pocket or, better still, a high interest savings account. So, get practical and search sites like Taste and Delish for great tasting recipes that won’t break the bank. While you’re at it, look at cutting costly habits. By giving up smoking with the help of services like Quitline, you’ll improve your body’s health, as well as your budget’s.
You’ll be surprised at just how quickly those small expenses add up when you try the following ideas:
1. Calculate Your Income & Expenses
Sit down and work out
- What your income is.
- What your expenses are.
When examining your expenses, this could include:
- Supermarket and grocery items.
- Takeaways and eating out.
- Utility bills including internet, Sky and Netflix
2. Tally Up The Numbers
By tracking your income and your spending, you’ll be able to identify how much money enters the home, how much leaves, and what it’s being spent on.
3. Ask Yourself The Following Questions
- ‘What are the necessary expenses?’
- ‘Which need to stay?’
- ‘Which am I happy to give up?’
4. Put The Money You Save Towards Your Debts
With that money you save? You can put that towards paying off your debts that much quicker and save money on interest in the long run.
Is Living Debt Free One Of Your 2017 Resolutions?
With these 7 steps, you’ll be well on your way to forming a plan that will help you to live a less stressful, more fulfilling, and less debt-filled life. At the end of the day, while debt may be an inevitability, it doesn’t mean you have to give in and give up. Make living debt free a resolution for yourself in 2017, follow as many of the steps as you can, and look ahead to living a better financial life into the future.