By Rebecca Styles
Research Lead | Hautū Rangahau
Credit cards and buy now pay later services (BNPL) can take a hammering as we juggle finances to pay for presents and travel.
Given the current cost-of-living pressures, using credit may feel unavoidable. However, there are steps you can take so Christmas debt doesn’t blight your New Year.
Top tips to get your credit card under control
Avoid minimum payments: If you can’t wipe your debt, pay as much as possible rather than just the minimum required. You’ll save on interest and be debt-free faster.
Pay by direct debit: If you can, clear your debt every month by setting up a direct debit, so you don’t have to worry about missing the payment date.
Pay in full: Partial payment means you’re paying interest – and you’re likely to be charged interest on any new purchases, as well as on any fees owing.
Consider a low-rate card: If you’re stuck with card debt, some banks offer low-interest deals when you transfer your credit card balance. To get the full benefit, you need to pay off the balance during that low-interest period.
Beware of buy now pay later (BNPL)
Even though BNPL services are now required to comply with some lender obligations imposed by the Credit Contracts and Consumer Finance Act, it remains easy to fall into a debt spiral. If you do choose to use a BNPL service, follow our tips.
Avoid late fees: While BNPL services don’t charge interest, late fees ranging from $2 to $10 can end up stinging. A $50 purchase with a $10 late fee added on is equivalent to 20% interest. Low-rate credit card interest ranges from 12.69% to 13.5%.
Keep payments manageable: It can be very easy to over-commit and end up with payments you can’t afford.
Only sign up to one BNPL service: If you sign up to more than one service, it can be hard to keep track of payments, and you could end up in a debt spiral.
Where to get help
If your debt is out of control, take immediate action. Talk to your bank and get budgeting advice.
Free budgeting advice is available from MoneyTalks (freephone 0800 345 123). MoneyTalks is run by FinCap (the National Building Financial Capability Charitable Trust), with support from the Ministry of Social Development (MSD).
You can look at the financial support options available via MSD’s Work and Income website, as well as talk to utility providers (for example, your power company) to see what flexibility with payments they can offer.
Consider whether you need to ask for help from a financial adviser. Financial advisers must be licenced and registered and can help you clarify your goals and financial plans.
You might be able to add your card debt to your mortgage. But you’ll need to increase your mortgage repayments to cover the extra and make sure you’re not just paying the debt off over a longer period. It could be worth asking your bank about lowering your interest rates or switching your bank to one that offers lower rates.
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