a guide to
unaffordable debt
Financial hardship is something many of us experience, often because of unexpected changes.
A drop in income or rise in expenses can feel overwhelming, and it can affect our ability to keep up with debt repayments.
But it doesn’t mean we’re out of options. Taking a fresh look at our situation can help us understand what choices we have and what steps might support us to move forward.
In this guide - 6 ways for
Reviewing our options
A full overview
Creating a full overview of our situation can help us to see what options are possible. This includes:
Your budget
Using a budget template can help us to see our overall situation on one page. See our guide to creating a budget here
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Know your debt details
A debt schedule is a summary of all our debt and the key terms. It includes:
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who we owe
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amount owed
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interest rate
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repayment rate
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whether it is a secured debt
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This information really helpful for negotiation, refinancing, hardship or insolvency options.
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Download a debt schedule template
Sources of income
When facing unaffordable debt, most people are looking for ways to increase their income. Circumstances vary, but some options may include:
Rechecking entitlements - show more
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Exploring options with skills and assets - show more
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Connection, Collaboration and Support- show more
Reviewing expenses
Knowing all our expenses provides an opportunity to consider our spending priorities.
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In order to achieve our goals, is there any spending we are willing to reduce or temporarily suspend?
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Tip: reviewing bank and credit card transactions can reveal some forgotten expenses e.g. subscriptions
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Hardship
Hardship options may offer short-term reprieve while we're working on other longer-term solutions.
Click the following links to learn more about hardship processes for:
Negotiation
Many creditors will talk through repayment options.
If you can show you have a plan to repay your debt, your creditors may be willing to:
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give you more time to pay them
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give you a lower interest rate
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charge you fewer penalties.
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Small businesses, service providers, and debt collectors are often more flexible and may accept very small regular payments.
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You may be able to combine your debts into a Debt Management Plan or Proposal - see more
Refinancing
Refinancing debt means that it is restructured, often to either:
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Refinancing may be the result of a hardship application or negotiation process. Or, debt could be consolidated with a new lender.
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Find out more about:
Microfinance - no interest loans
Microfinance loans help people access safer credit and reduce debt. In Aotearoa, some charitable organisations offer small, interest-free loans for debt relief, providing low-income people with a safe and affordable way to pay off high-interest debt.
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Two nationwide organisations offering microfinance are:​
Both organisations have a thorough application process and require applicants to be working with a financial mentor.
Insolvency
Sometimes, even when we’re doing our best to manage our money and pay off debt, it’s not enough. If we’re struggling to repay our debts, we might need to look at an insolvency procedure.
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This is a formal way to deal with debt, but it can impact many parts of our life and should be considered carefully.
See more about the impact of insolvency here.
3 personal insolvency options ​
No Asset Procedure (NAP)
If you:
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owe less than $50,000
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cannot make repayments on your debts
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don't have any assets that could be sold
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Bankruptcy
With all insolvencies
you remain responsible for:
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secured debt (if you want to keep that item)
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court fines and reparation
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child support and maintenance
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fraudulent debt
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​student loans (except when written-off under bankruptcy)​
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Joint debt, and debt with a guarantor:
​​You will be released from paying, but creditors will pursue the other party for the full balance.
All insolvencies affect ​
banking
renting
services
borrowing
travel
employment
Any insolvency procedure will negatively affect your credit rating. This is likely to make it more difficult to borrow money or access some important services. One of the key things to check before applying for an insolvency:
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will your bank keep your account open?
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If the answer is no, before submitting your insolvency application, you will need to open a new bank account with a different provider who will let you have an account with them after insolvency.
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Support
It can really help to talk with someone when worried about debt.
Financial mentors offer free and confidential support to help you understand your situation, explore your options, and make a plan. They can also talk with banks and lenders on your behalf about hardship or repayment changes.
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If a loan looks unfair or was lent irresponsibly, they can support you to challenge it and make a complaint through the lender’s dispute resolution scheme.
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