Will Debt Consolidation Work for Me?
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In New Zealand’s high cost-of-living environment, many people are juggling credit cards, personal loans, car loans, or “buy now, pay later” installments. Managing multiple payments can feel chaotic — one missed bill often snowballs into fees, higher interest, and stress. Kiwis now hold over $20 billion in consumer debt (credit cards and personal loans combined). With credit cards charging ~20% interest on balances, and payday or store loans even higher, it’s easy to fall into a debt spiral.
What Is Debt Consolidation?
Debt consolidation means combining multiple debts into a single loan — usually at a lower interest rate and with one repayment schedule. Instead of juggling five or six different bills, you have just one payment and one interest rate. The goal is to simplify repayment, reduce interest, and lower stress.
Table 1: NZ Consumer Debt Snapshot (2024)
| Debt Type | Total Outstanding | Typical Rate |
|---|---|---|
| Credit cards | $6.18b | ~19–20% |
| Personal loans | $14.7b | 8–20%+ |
| BNPL (Afterpay, etc.) | US$1.45b spent 2023 | 0% (fees on late payments) |
Why Consider Consolidation?
- Simplified payments: One repayment instead of many.
- Lower interest costs: Replacing 20% credit card debt with a 10–12% loan can save thousands.
- Lower monthly payments: Longer terms can ease cash flow (though may cost more long term).
- Credit score boost: Paying off credit cards reduces your utilization ratio and can improve your score over time.
- Reduced stress: A single, structured repayment is easier on mental health — important given 24% of young Kiwis (18–34) report relationship strain due to money issues.
Example: Potential Savings From Debt Consolidation
(This is an example only — actual savings depend on your loan terms and situation.)
| Debt Scenario | Amount Owed | Interest Rate | Monthly Payment* | Total Interest Over 3 Years |
|---|---|---|---|---|
| Before (Credit Card Debt) | $10,000 | 20% | $375 | $3,500+ |
| After (Consolidation Loan) | $10,000 | 11% | $325 | $1,800+ |
*Estimated on a 36-month repayment schedule.
Result: By consolidating $10,000 of credit card debt at 20% into a personal loan at 11%, you could save around $1,700 in interest over three years — with a lower monthly payment.
Who Benefits Most?
Debt consolidation suits those who have:
- Multiple high-interest debts.
- A steady income to support repayments.
- A decent credit score for favorable loan terms.
- The discipline to avoid running up new debt.
What to Watch Out For
- Loan costs: Check fees and total repayment before consolidating.
- Discipline: Don’t use consolidation as an excuse to borrow again.
- Secured vs. unsecured: Secured loans may be cheaper but put assets at risk.
- Debt size: If your debt is overwhelming (e.g. >50% of annual income), consolidation may not be enough.
Alternatives
- Debt management plans (through budgeting services or Summary Instalment Orders).
- Negotiating with creditors for hardship arrangements.
- Balance transfer credit cards (low/0% interest for a set period).
- Home equity refinancing (for homeowners, but risky).
- Bankruptcy or insolvency options as a last resort.
Bottom Line
Debt consolidation can simplify your life, cut interest costs, and provide a path out of debt — but only if you qualify for better terms and commit to better financial habits. If you’re still unsure, contact as at Quickloans to discuss your options before committing.
Sources
- Reserve Bank of NZ – Household Debt Statistics
- Canstar NZ – Average Credit Card Interest
- Canstar NZ – Personal Loan Rates
- Statista – BNPL Spending in NZ
- Commission for Financial Capability (CFFC) – Financial Stress & Relationships
- Unity Credit Union NZ – Debt Consolidation & Credit Scores
Debt consolidation FAQs
Does debt consolidation get rid of my debt completely?
No. Debt consolidation doesn’t erase your debt — it restructures it. You still owe the money, but it’s rolled into a single loan (often at a lower interest rate). This can make repayment easier and potentially cheaper over time, but it only works if you commit to the repayment plan and avoid taking on new debt.
Will a debt consolidation loan hurt my credit score?
At first, applying for a new loan may cause a small dip in your credit score due to the credit check. However, if you use the loan to pay off high-interest balances (like credit cards) and then make your new payments on time, your score is likely to improve over time. That’s because your credit utilization ratio will drop and your repayment history will look stronger.
What types of debt can I consolidate in New Zealand?
You can consolidate most unsecured debts, including:
-
Credit card balances
-
Personal loans
-
Car loans (depending on the lender)
-
Hire purchases or store finance
-
Buy Now, Pay Later (BNPL) installments
Secured loans (like a mortgage) usually aren’t included unless you choose to refinance using your home equity.
What happens if I don’t consolidate my debts?
Without consolidation, you may continue juggling multiple repayments, high interest, and late fees. This can increase financial stress and make it harder to get ahead. In NZ, small loans and BNPL services are a common cause of debt spirals, with multiple repayments draining cash flow. Consolidation simplifies this into one repayment schedule, which helps many people avoid “death by a thousand cuts” from numerous small debts.
Are there alternatives if I can’t get a consolidation loan?
Yes. Options include:
-
Debt management plans (via free budgeting services like MoneyTalks NZ).
-
Negotiating directly with creditors for lower interest or hardship arrangements.
-
Balance transfer credit cards with 0% interest for a limited period.
-
Refinancing with home equity (if you own a house, but with higher risk).
-
Insolvency or bankruptcy as a last resort.
by Ash Horton
31/05/2021
Ash is a professional content writer with extensive experience in business development in the financial services. Ash has founded businesses from the age of 19, including franchising ventures, and working alongside some of the largest retailers in the world.