How to deal with debt

Debt problems never go away and so if you are struggling to pay your bills, it’s always best to take stock of your situation before it spirals out of control.

Ignoring debt problems only makes things worse. Generally, interest will continue to be charged on top of the debt and any possessions secured against the debt (eg your car) may be repossessed and sold. Additionally, your credit rating will be affected and you may even be sued.

No matter how serious you believe your debt situation to be, you do have options you need to consider:

What’s my current financial situation?

Assess your current financial situation and your capacity to pay your creditors. Ask yourself:

  • what income do you have?
  • what are your basic living costs?
  • how much do you have left after deducting your basic costs from your income?
  • If you do have money left, then you can make offers to your creditors.

To help work this all out, is a useful resource.

What is my capacity to repay debts?

Take some time to think about your income, expenses, assets and liabilities, and try to work out a budget so that you can meet your financial commitments when they are due. A free and independent financial counselling service may be able to help you with this process.

There are 3 main ways to improve your capacity to repay your debts:

  • Increase your income

If you’re not able to work full-time, is part-time or casual work an option? If you have grown children living with you, should they be contributing more to household expenses?

  • Reduce your expenditure

You may need to cut down your living expenses. Paying cash for basic items, not using a credit card, and so avoiding interest and fees, can help.

  • Sell assets

You may own household or personal items you no longer need. Consider a garage sale, selling assets that produce no income, or if necessary shares or investments to reduce debt.

Am I entitled to a pension, benefits or other government assistance?

Visit the WINZ website to see whether you have any entitlements. The site includes specific information for:

  • carers, parents and guardians;
  • unemployed, recent immigrants, students, trainees, self-employed and farmers;
  • people in crisis, including recently separated, divorced or bereaved;
  • ill, injured or people with a disability; and
  • people planning to retire or needing help in retirement.

Can I vary loan repayments on hardship grounds?

If you cannot keep up your debt repayments, you should contact your creditor as soon as possible to discuss your situation. Try to agree on a repayment plan that you can manage.

Tell them that you’re having financial difficulties and want to discuss repayment arrangements. Offer only what you can really afford to pay, making sure you can offer something to all your creditors. Ask if they will agree to stop charging interest or reduce the interest on the debt.

A creditor may want details of your income and expenses, together with supporting documents. Although you do not have to do this, cooperating may improve your chances of reaching an agreement.

If you do reach an agreement, confirm it in writing and ask for a written reply. Remember to include any agreement about interest. Keep a copy of all your letters, faxes (including transmission reports), emails and notes (dated and signed by you) of any phone conversations.

Can I consolidate my debts?

If you have a number of loans at different interest rates, you may think about consolidating all your loans and other debts into a single loan. Although this idea appeals strongly to people faced with a lot of creditors demanding payment, it is vital that you make sure it will be the best option for you in the long term. If you end up paying a higher rate of interest, extra fees and keep borrowing on your credit card, you will be even worse off.

Should I consider bankruptcy, and what are its alternatives?

If all else fails, applying for bankruptcy may be your best choice – a creditor who has obtained a judgment against you may also apply to have you made a bankrupt.

Bankruptcy releases you from most of the debts you owe at the time you apply and will get creditors off your back. However, you will lose your home and other assets, you may be forced to pay some of your income to the bankruptcy trustee and you may face other restrictions and potentially negative consequences. Get advice from a financial counsellor or legal service before you apply for bankruptcy.

Where can I get help?

Some people use an accountant or other paid adviser. Many people find a free and independent financial counselling service the best option. Citizens Advice Bureau is a handy place to start looking for any help you might need.



  1. Kylie June 1, 2018 at 8:21 pm - Reply

    We get paid monthly and i find that helps us with our budgeting – everything gets put into our annual budget then broken down into 12 monthly payments. We are lucky that we don’t have a lot of debt but with monthly pay it is easy near Christmas time to put things on our credit cards but then be paying it off still in June! I think the key for us has been to not get into debt in the first place, most of the time (for us and our situation) it has been a matter of do we need or want that item?

  2. Zeri Ong May 26, 2018 at 9:15 pm - Reply

    Fortunately for me, I’ve never been in debt. It was just something I learned from my parents I guess. If I can’t afford it, I don’t buy it. I’m also a saver…I like knowing that I have money in my savings all the time. So I try my best, and I hope I can impart the same mentality with my son.

  3. Amanda Carr May 15, 2018 at 9:44 am - Reply

    This is a great article as most of us have loans or debts we have to pay and trying not to spend more than you can afford. I must say the internet is bad for buying things yiu probably dont really need. But i love the advice in this article gives you something to think about.

  4. Hollie April 24, 2018 at 2:13 pm - Reply

    This is a great read and so relevant for so many people! I am fortunate to be able to work part time and not need fulltime work but it is great to have the option, if needed. I have grown up with examples of people who do not manage their funds well so this has made me a lot wiser with my own money as an adult but I will admit that I could definitely improve with spending!

  5. Kym Moore April 11, 2018 at 1:31 pm - Reply

    Great breakdown of the options for reducing debt. I need to take more control – I’m especially bad at retail therapy

  6. Shontelle Fahey April 11, 2018 at 12:09 pm - Reply

    This is a great read on ways to improve financial status.

  7. Vikki Sainsbury April 11, 2018 at 10:31 am - Reply

    I have recently changed employers and my pay frequency changed from fortnightly to monthly – was a bit hard to get used to and a bit of a hassle changing all my payments, but getting it sorted now. We have a bit of debt which I have figured will be gone in about 12 months, so we do have a tight budget but will be freed up in about a year 🙂

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