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How to get debts under control

Personal Loans Written by Squirrel Money, Oct 19 2017

If you’re drowning in credit card debt, you’re not alone. New Zealanders have racked up a collective $6.6 billion worth of credit card debt, and that number keeps growing, especially around Christmas time. If you’re in this boat, don’t panic. Here’s three proven strategies that will help you to breathe easy again.

Balance transfer

Banks quite often run promotions offering interest rates as low as 1.99% or even 0% on a new credit card if you transfer your overdue balance to them. If you owe $10,000, based on a typical credit card interest rate of 20%, that’s going to save you close to $2k in a year.

While balance transfers can be great, there are a couple of things to be wary of.

First up, the bank wants you to start spending on the new card, because any new purchases rack up interest at the full rate, rather than the promotional rate. Even worse, you have no way of paying off that fresh spending until you’ve cleared the entire debt you transferred across. So you might want to cut up that new card as soon as it arrives!

As for the old card, it’s suddenly got a zero balance, which can be a very big temptation. Either cut it up too or freeze it in a block of ice, or you might find yourself in even deeper trouble.

The other catch is that balance transfers usually only last six or 12 months before the promotional rate runs out. That means you have to aggressively work towards clearing the balance. If you breathe a sigh of relief, kick back, and do nothing, the time will fly by and you’ll be no further ahead.

Balance transfers aren’t for everyone. If you don’t have good discipline then this is probably not a good option for you. (And let’s face it, if you have too much debt then chances are you may be lacking a little discipline with your spending.) If you already have credit cards with the banks offering the sweet deals, you’re out of luck too - they usually only give them to new customers.

The snowball method

Set up automatic payments for all of your debts at the minimum amount. Then find your smallest debt and increase the payments by 10% or at least $100. You’ll soon notice the balance drop! As soon as that debt is paid off, allocate all the payments to the next smallest debt and so on. The great thing about this method is it allows you to quickly see your debt reduction gain momentum as things snowball. This can be really motivating.

Where can you find another $100 or 10%? Here are a few ideas: 

  • Cancel Sky TV and other unnecessary subscriptions.
  • Sell things you no longer use or need on Trademe or Facebook.
  • Keep an eye out for what is on special at the supermarket and switch to the no frills brands.
  • Get your insurance reviewed by a professional. You may be over insured or there may be better deals available.
  • Use supermarket receipts that offer fuel discounts to save on petrol.
  • What foods do you buy a lot of that you can get in bulk at a discount?
  • Have dinner with family once a week if they live nearby. They will love it and you will also reduce your food bill. You may even be able to take home leftovers.
  • Move back in with your parents… Not a fun option but if things are bad or you really want to get back on track fast then discussing this drastic measure could be a good idea.
  • Stop buying coffee. Make it instead.
  • Make your lunch at least 4 days a week. Making extra dinner helps because you can use the leftovers for lunch the next day.
  • Always have a shopping list and stick to it. Impulse shopping leads to inefficient spending and over purchasing.

Debt consolidation

Let’s say you’ve got a bunch of credit card debts that you’re struggling to juggle, as well as a couple of hire purchases and a personal loan. They all have different interest rates and billing cycles, and it’s a nightmare trying to keep on top of them all.

Debt consolidation wraps them all up into one neat parcel, leaving you with a single loan at a cheaper interest rate. A personal loan from the bank is typically around 18%. That’s a bit better than most credit cards, but there’s room to improve.

That’s where Squirrel Money comes in. Being a peer-to-peer lender, we cut out the middleman by connecting borrowers directly with lenders. As a result, our rates can be as low as 8.95% p.a., which could potentially cut your credit card pain by more than half. You can borrow anywhere from $3,000 to $70,000, so it’s a solution even if you have quite a bit of debt.

The only thing to watch out for with debt consolidation is the flexibility of the loan. It’s often spun out over a long period, which means you might actually pay more total interest even if it’s at a lower rate. Most lenders will also charge you more for trying to repay the debt early.

With Squirrel Money however, there are no hidden fees and you can pay back the full amount of your loan whenever you like with no penalties, which means you can get to work on clearing the debt as fast as possible.


Get your head out of the sand and get your debt sorted. Identify the mistakes that allowed your debt to get out of control in the first place and stop making them. All it takes is a little bit of awareness and to approach the issue with a plan. Pick the strategy above that will work best for you or combine them.

Why not consolidate everything into a personal loan at a low interest rate but maintain the payments at or near the amount you were paying on all the individual loans? This way you get the lower rate and pay the loan off faster. You are almost managing with your current payments so why not endure the discomfort for a little longer to get rid of your debt quickly?

Now don’t stop there! Once you are debt free, keep making payments into a savings plan. This could become a deposit for a house or you could even invest in Squirrel Money and get between 8% - 9% p.a. return on your money.

It’s easy to feel hopeless when you’re drowning in debt, but you’ve got to keep your head up. Arm yourself with a sensible strategy, attack those debts, and you’ll be back on track in no time.

If you're ready to apply for a Squirrel Money loan, click here to get started. 

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