Controlling your debt

Every Kiwi man woman and child owes on average $41,000 in mortgages and consumer loans such as credit cards and hire purchase. Some have no debt of course, but others are finding their debt overwhelming and are barely able to make the minimum monthly payments on their loans.

Budget advisers and lenders are seeing clients who owe tens of thousands of dollars to multiple lenders, on top of what they owe on mortgages.

Margot King, marketing and products manager at financial services co-operative the PSIS told us: "It's not just a low-income issue, we are seeing people from all sorts of backgrounds and income levels coming to us."

So what can people do to get on top of their debts? One answer is debt consolidation, where you pool all your debts with one lender and only have one regular payment to make. But there are some pros and cons with it and it won't suit every borrower.

Debt consolidation

Debt consolidation will only improve your financial position if you cut the total cost of your borrowing. Debt consolidation shouldn't become a habit; the aim should be to pay off the debt and not take on new loans in the meantime. The best way to use this method of debt management is to cut the cost of borrowing while paying off your debt as quickly as possible.

You need to look at the causes of your debt and your ability to pay it off. Do you just need some breathing space or do you need budgeting advice to help you get your expenditure and borrowing under control? If you are struggling with debt and are already late with payments, replacing several lenders with one may buy time but won't necessarily solve your problem.

A number of lenders mentioned the need for the loan to be structured to improve the borrower's position. Non-bank lender General Finance said it was cautious about debt-consolidation lending unless it was confident that the applicant's debt resulted from unusual one-off circumstances. Otherwise it feared they would continue to build up debt after consolidating.

Several said that they would be aiming to help customers pay off their debts by offering various levels of counselling, discussion and ongoing monitoring. If you're having trouble paying your bills and keeping up with loan payments, it may be worth seeking advice from a budget adviser before diving into a consolidation loan. Many debt-consolidation lenders are cautious about lending to people who don't have steady incomes or who have had repayment problems in the past.