Alternative options

Gavin Earle of Credit Union Baywide suggested that for customers already in difficulty with their commitments it may be better to set up a formally structured debt-repayment programme through a special purpose account. "This way the individual has a certain amount credited to this account from their income with repayments then split off to the various creditors."

Credit Union South's Andrew Leys said that while it offered debt-consolidation loans this was not always the best way to help.

"Often a straight out debt consolidation, whoever does the loan, will simply give the individual a temporary reprieve to go out and incur more debts. By working closely with individuals and their families we can, over an extended period, achieve a much better outcome - whether or not that included a debt-consolidation loan."

Margot King from PSIS said it worked out a repayment plan with customers: "Where we're unable to fully refinance all a customer's debt we will try to refinance some, particularly high-interest debt, so they can get a tailored repayment plan in place and often save on interest costs with a lower rate."

Legal options

Maureen Pitman President of the New Zealand Federation of Family Budgeting Services said its advisers often organise repayment plans known as Summary Instalment Orders (SIOs), set up through the government's Insolvency and Trustee Services.

SIOs allow you to repay up to $40,000 of unsecured debt in agreed amounts to creditors in instalments. This is usually over three years but in some cases can be up to five years.

An SIO also stops lenders from adding penalty payments to outstanding debts.

Alternatively, an informal instalment plan might be agreed with creditors. A borrower would set aside a certain amount to distribute among a pool of creditors.

Individuals can apply directly to the Insolvency and Trustee Service for an SIO order. The advantage of seeking help from the Family Budgeting Service is that advisers have experience in dealing with creditors and the service is known to lenders. This might make it easier for someone in difficulty to negotiate a repayment plan rather than going it alone.