Struggling with debt? 3 proven ways to take action today

Posted October 2016 by Robert Kramers

debt options

Consolidation, settlement or management: how to handle your debts? 

Do your debts leave you feeling hopeless? No matter how hard you try, debts have a nasty habit of sticking around.

Of course, this doesn’t even touch on those unforeseen expenses that pop up at the worst possible time. The ones that add yet another expense to the credit card. Or require yet another emergency loan. Debts tend to snowball, and snowball fast!

This is an all-too-common situation faced by many New Zealanders, but it’s important to remember that this feeling of hopelessness does not mean your situation is hopeless. Far from it, in fact. Because no matter how much debt you carry, there’s always an option available that can help you gain control of your debts, and finally work towards being rid of them.

So what are your options? And which is best for you?

Below we’re going to explore the pros and cons of the three major options for dealing with your debts: debt consolidation, debt management, and debt settlement.

By the end of this post, we’ll have answered your most pressing questions, such as ‘What are they, exactly?’, ‘How do they compare?’ and, most importantly, ‘Which option will help me live my best financial life?’


Option #1 - Debt Consolidation

debt consolidation

As we’ve explored in the past, debt consolidation is widely accepted as the go-to solution if you’re struggling with debt. Whether you have just a few personal loans, or a wallet full of maxed-out credit cards.

Through consolidating, not only do you cut down on the number of creditors you have to manage, or the number of payments you make each month to just the one, you also make your daily financial life that much easier to manage.

From credit cards to car and vehicle loans and most everything in between, you can consolidate numerous types of debts with a consolidation loan. You also avoid many of the risks associated with other debt solutions, such as debt management or debt settlement. Both of which we explore in more detail below.

It’s for these reasons that loan that consolidates your debt remains the safe, easy and straightforward option for New Zealanders wanting to begin their journey to becoming debt free.


  • Pay a much lower interest rate than you are currently
  • Reduce your monthly repayments as a result
  • Pay your debts off quicker
  • You’re left with only one creditor to manage and just one monthly repayment
  • Cut down on late fees and other charges
  • Improve your credit score by paying off numerous outstanding debts in full
  • Become the boss of your debts and take back control of your life


  • It can have a minimal, short-term impact on your credit score as this can be seen as a ‘hard check’ against your credit.
  • It can work against you if you fail to cancel your credit cards, and continue to rack up additional debts.

Stay up-to-date and make an informed decision by reading up on the full benefits of debt consolidation.


Option #2 - Debt Management

debt 2

Going it alone in life can be tough, and managing your finances is no different. Do you have a job to keep up with? A household to run? A family that keeps you busy? Add ‘managing your debts’ to this equation, and life becomes that much more hectic.

It’s situations like this that make it difficult to find the time to work out what the next step is in the journey to becoming debt free.

Do you find yourself putting it off? You’re not alone. And when you do finally find the time, how do you know you’re making the right decisions? This is where debt management (also known as credit counselling) comes in.

Debt management sees you joining forces with an individual or team who works on your behalf with creditors - that is, the people you owe money to - to negotiate a better deal on your interest rates, minimum monthly repayments, and other aspects of your debts.

Here’s what this actually means for you:

Each month, you send a payment to your debt manager, who then goes on to pay your debts for you. This cuts out the hassle, and slashes the number of payments you have to manage down to just one.  

This does beg the question: ‘Why wouldn’t you just call your creditors and do this yourself?’

The truth is, many creditors in New Zealand will already have arrangements in place with most debt management firms, in order to reduce your interest rates and payments if you sign up.


  • The ability to negotiate a better interest rate and a lower monthly repayment.
  • Obtain tailored advice that can guide you through the steps you need to take to improve your financial situation.
  • Gain insight and resources on other aspects of managing your money that can help you get your finances back on track.


  • Debt managers charge a fee for their service, which can be difficult to meet if you’re already struggling to pay off your debts.
  • There’s no guarantee that a debt manager will be able to negotiate a better deal for you, so you could be left in the same as when you started.
  • Many debt managers will have creditors close your accounts, which will negatively impact your credit score.
  • Creditors could change the status of your loan from ‘Paid’ to ‘Settled’, which indicates to other creditors that a special arrangement was made and you didn’t repay your loan in full as originally agreed. This can leave you looking financially unreliable in the eyes of future creditors.


Option #3 - Debt Settlement

debt 1

Debt Settlement is the riskiest of the three options we’ve explored today, and sees a third party bringing your creditors to the negotiating table in an attempt to reduce the total balance you owe on your debts. If Bankruptcy is considered as a last resort for those struggling with debts, then debt settlement is usually seen as the option that precedes it, so think carefully before making your decision.

Instead of making regular payments to your creditors like you would with debt management, you make payments into an account that the debt settlement company has access to. Once this account reaches a level that is enough to settle your debts, the company will negotiate a lump-sum payoff with your creditors that is ideally less than the original total balance owed.

It’s important to note that Debt Settlement isn’t as simple as it sounds and can actually be very risky for the average New Zealander.

The reason being, most debt settlement companies will ask you to default on your debts. That is, they’ll ask you to purposely stop making payments to your creditors for as little as a few months through to a number of years, all in an effort to gain more bargaining room at the negotiating table.

If, like many New Zealanders, you owe money to multiple creditors, debt settlement becomes that much trickier, as you’ll need to repeat this process for each and every creditor you owe money to. While it may work for one, there’s no guarantee this will work again.

Debt settlement isn’t a ‘one size fits all’ solution. Far from it.

There is also no guarantee that the creditor will accept your offer. This means you could be left in a far worse financial position than you started in, as this lengthy process doesn’t stop interest, late payments or penalties from accruing on your debts.


  • Debt settlement firms may be able to negotiate down the amount of debt you owe.
  • It can have less of an impact on your credit score than filing for bankruptcy.
  • It can help you avoid asset liquidation, which often comes with bankruptcy


  • It’s a very risky option, which can leave you in a worse position than you started.
  • The amount of debt that is ‘forgiven’ can count as income, which means you could end up paying income tax on the savings you make.
  • Interest, fees and penalties will be added to the amount you owe during the settlement process.
  • The average time for debt settlement is 2-3 years, which means 2-3 years of fees, interest and added penalties.
  • Your credit score will suffer, as skipping payments, defaulting on loans and not paying your debts in full will all be recorded in your report.
  • Debt settlement companies usually base their fees on the portion of the balance that was settled, which is often as much as 20%. For example, if you save $10,000, You’ll be paying $2,000 in fees.
  • Debt settlement requires that you have a large sum of cash available out of the gate to give you power at the negotiating table, which isn’t a viable reality for many New Zealanders already struggling with debt.
  • Creditors can refuse! That’s right: lenders and creditors are not obligated to accept the terms brought to the table, and may reject it outright.
  • If the settlement process fails, any new charges, fees or interest will remain.

You have the facts, so which is right for you?

In the vast majority of cases, debt consolidation is the go-to option for most New Zealanders. It’s largely risk free, provides numerous benefits (such as improving your credit), cuts down on the stress and paperwork and leaves you with just a single monthly repayment to make. It doesn’t get much easier than that.

While there are some special cases where debt settlement or management could work for you and your circumstances, it’s important that you consider the risk factors involved before you proceed. There’s a very real chance you could end up in a worse financial position than you started, which is why we recommend debt consolidation as the safest, most beneficial approach to managing your debts.

Want to know your options?

Use our debt consolidation calculator

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