How to manage debt

Swiped that credit card a few too many times? Here’s how to work your way towards a debt-free future.

Debt sucks, and sometimes, it can feel so big that we can’t seem to do anything else until it’s out of the way. There’s also a lot of emotion and shame wrapped up in owing money that can freeze us into ignoring it, overwhelming us to the point that we don’t even know where to start.

This is where we come in to say we’re here to help you with some ideas to put together a plan you can stick with.

Sure, we can try and live off instant noodles for the next however many months or years, but just like a fad diet, clearing your debts in this way is neither realistic nor healthy. You need a debt plan that you can stick with, and it needs to fit into your overall plan towards financial freedom that works for you and your life. So instead of living off cheap carbs for weeks on end, here are a few different ways to manage your debt so you can get back to the good things in life.

If you have a mortgage…

Talk to your bank or mortgage broker about consolidating your debt. This basically means taking out a new loan to wrap all your existing debts together in order to pay them off as a single ongoing payment.

Ideally this will reduce the majority of your interest rates on all your debts so you can get out of debt faster (think credit cards with 13% interest rates vs. a 6% interest rate on a mortgage).

If you don’t have a mortgage…

List all your debts and rate them in order from highest interest to lowest interest. Next, set up an automatic payment that comes out of your account each week (before you get a chance to get your hands on it!) and have it go towards paying off your highest interest debt.

Once that one’s cleared, work your way down the list until you reach zero. Be patient. Talk to your friends to help keep you accountable for any splurge purchases. Don’t beat yourself up if you make slip ups along the way — the key is to aim for consistent savings, not perfection!

Good debt vs. Bad debt

Sure, no one likes having debt, but that doesn’t mean all debt is technically “bad”. Some debt, like a mortgage, can actually help you grow your money in the long term. Therefore it’s useful to know the difference between “good” and “bad” debt so we can avoid “bad” debt sneaking up on us again. You can do this by:

  • Getting rid of your credit card: With a tap or swipe, having a credit card is like having the world at your fingertips. But the harsh reality is that credit card interest rates range anywhere from 12% to more than 20%. And if you don’t pay off the amount borrowed in full at the end of the month, it won’t be long before you’re left with a hefty bill to pay, especially since the interest you’re charged will quickly build up over time.
  • Not buying a new car: Did you know that new cars can lose their value pretty quickly? Instead of borrowing money to pay for that brand new Audi or Ford, set a budget and stick to it. You can find some great second hand cars that won’t break the bank if you know where to look. Plus, the government now offers a rebate for certain hybrid and electric cars.
  • Avoiding buy now pay later (BNPL) schemes: A modern alternative to layby, BNPL services (like AfterPay) have got bigger and easier over the years as a far more accessible way to pay for goods compared to other forms of credit (even more so than a credit card!). However, there’s currently no legal obligation for BNPL providers to ensure their lending is suitable and affordable for their customers, leaving plenty of people falling into a spiral of financial hardship and debt.

We know borrowing money for things your present self wants and you think your future self will enjoy can feel great in the moment, but like all good things in life, there’s always a catch. In most cases, taking on debt simply isn’t worth it so it’s best to just avoid it wherever and whenever you can.

If you do have to take on debt though, there are manageable options that won’t ruin your life. It’s useful if you make a list of what you owe, talk to your bank about consolidation, and start chipping away at them with regular automatic payments. Nothing good comes from ignoring our problems – face them head on and you might just be debt-free sooner than you think.


The above article is general information and does not purport to give financial advice. The Mercer KiwiSaver scheme and Mercer FlexiSaver are issued by Mercer (N.Z.) Limited. Product Disclosure Statements are available free of charge at