With New Zealand’s total household debt rapidly rising and now exceeding $250 billion, MoneyHub’s review of personal debt relief options reveals glimmers of hope to those struggling with high-interest credit.
Senior Researcher Christopher Walsh comments:
“New Zealand financial institutions are largely generous with issuing debt, but if and when the wind changes of an individual’s finances, there is very little assistance other than the common ‘financial hardship’ applications. And for those struggling even without debt, buying a car to be able to get to a job could mean upfront fees and a 25% to 30% per annum interest loan”.
“We frequently hear of financial shocks leading to people finding quick fixes by way of high-interest loans, but even a $1,000 loan can easily come with a $250 application fee and 30% per annum interest rate. The repayments can get tough on already pressed finances”.
“There is good news with positive examples of community-based debt assistance. For example, the Nga Tangata Microfinance Trust offer no interest loans (‘NILS’) which can be used to make asset purchases, and debt relief loans (‘DRLS’) which are used to help ease the burden of excessive debt. The debt relief loans were to a maximum of $3,000, with capital provided by KiwiBank. The terms, however, are clear – the applicant must pay back the loan in full within two years, and they must have been working with a budget advisor for at least 6 months”.
“StepUP is another program, offered by the Salvation Army and funded by the BNZ, offering low-interest loan from $1,000 to $5,000 at a fixed interest rate of 6.99% per annum. All loans must be for an approved purchase, and for a maximum of 36 months. Approved purchases included second-hand cars, household appliances such as fridges and washing machines, computers, medical Expenses and course-related costs”.
“More community-based loan alternatives are needed to prevent people taking on oppressive debt, and to get people out of debt spirals. We applaud KiwiBank and the BNZ for funding these initiatives, and encourage other banks to come to the party. The programs have robust systems in place meaning they lend prudently. The more funding that can be allocated to a loan book, the greater the number of people who will avoid hardship”.
“Many New Zealanders are not aware of such schemes, and ultimately don’t have access to any solutions to their debt problems. Often the first port of call for anyone debt-loaded is their KiwiSaver scheme, by way of an application of financial hardship to release a portion (or all) of their fund. But being approved is by no means certain and can’t be relied on”.
“Making a financial hardship application with a lender is also a popular course of action, but few people know how to make a strong case. Even if a hardship application is approved, the debt still needs to be paid and revised terms will not be that generous”.
“Low rate debt schemes are still relatively rare, meaning the majority of people with money problems turn to debt consolidation loans or worse. With more community schemes available, everyday New Zealanders can become more financially resilient and live happier lives. We suggest that anyone struggling with debt contact their local budget advisory service to not only receive guidance but also see what loan schemes are available”.
“With a growing number of New Zealanders financially stressed, we applaud the Commission for Financial Capability for identifying the growing need for Financial Resilience and dedicating Money Week 2018 to this issue”.