For many people managing their debt is the most important thing they can do to improve their financial situation.

Consolidate

While there is nothing wrong with having a mortgage with repayments that are well within your means, other debts can be a millstone around your neck and the longer you have them the more interest you will pay. The first step is often to consolidate your debt by increasing the mortgage on your house at a more favourable interest rate and using this to pay off your credit card and hire purchase debts.

Reduce your mortgage

If you find you are able to accumulate some savings then it is worth considering paying off some of your mortgage early although be sure to check with your mortgage provider that you won’t incur penalties in doing so. Sometimes it can be tempting to use the savings to invest in a rental property rather than pay off your loan but you should consult with a financial advisor before doing so, as often the best answer is to pay off more of the mortgage first.

Watch that credit card

If you find you are having trouble paying off your credit card don’t be too tough on yourself. You are not alone. A large percentage of people don’t pay their credit card off by the due date. Huge amounts of advertising dollars are spent encouraging us to reach for the plastic for purchasing the groceries or a coffee.

Be particularly wary of credit card debt as it can build up without you being aware of it, particularly during the holiday season. Always do your best to pay it off by the due date and then you get the benefits without incurring the large interest costs that you have to pay when you start using it as a source of loan money.

Debit Cards

Another good option to consider is to get a debit card. These work the same as a credit card apart from the fact that you need to keep the account in credit for the card to work. It has the advantage over an ATM or EFTPOS card that you can buy things online, overseas, over the phone or by mail order and pay bills with your own money and no more worries about credit card bills.

Get help

The Get out of debt calculator will help you to work out how to get rid of your debt faster.

Make sure you ask for help if you find your debt is increasing. There are lots of budget advisory services available and you can also phone 0800 SORT MONEY (0800 767 866) for free budget advice. This is a service provided by the Retirement Commission with the New Zealand Federation of Family Budgeting Services.