What to do if you’ve maxed on credit - Diana Clement

Christmas is the season to be maxed out on credit. Photo / 123rf

OPINION

‘Tis the season to be maxed out on credit. Presents and food alone add up to a whole heap of extra spending in December.

There’s no doubt 2023 has been a year for financial pain like none other in the past 20 years. Inflation has hurt some more than others. But few can have missed how much virtually every single thing we buy has gone up in price.

If you’ve maxed out the credit, the worst thing to do is stick your head in the sand. Start by making a list of what you have left to buy, whittling it down if possible, and allocating your remaining money if you have any.

Seek help. Do you have friends or family with whom you can share your situation?

There are some short-term fixes. If there is no money left, food banks provide an invaluable service, at any time of the year, but especially now. Some can also provide presents for children. “Pay it forward” groups on social media are also a great source of help if you’re struggling.

A quick way to raise small amounts of cash is to sell things you don’t use, if you have any. People buy presents on Trade Me and Marketplace right up until Christmas Eve, which gives a little time for a few quick sales.

Another short-term fix to purchase some essentials is to use buy now pay later [BNPL] credit. I’m generally against BNPL. However, for emergencies, to buy essentials, it can provide a solution. Be very wary of the fees for missed payments.

Irene Chapple, communications manager at Canstar NZ says if you’ve maxed out your credit card, you might want to look into a low- or zero-interest rate card transfer offer, which should give you some months of low- or no-interest charges.

“During this time you may want to pull back on discretionary spending so when the funds are due to be repaid, you have the cash available,” Chapple says.

“Credit cards can be really useful generally for this time of year, to manage cash flow and expenditure. We all tend to spend more than we intend to at this time of year, so try to offset some of the impact by taking advantage of rewards like Airpoints or cashback offers.”

Next, consider seeking help from a financial mentor [AKA budget adviser]. They are trained and well-experienced at helping people find a way out of tricky financial situations. Visit MoneyTalks.co.nz or call 0800 345 123 to get connected with a free mentoring service in your area.

A mentor will help with budgeting but also work with you and your creditors to make hardship applications and set up repayment plans.

Lenders are duty-bound under the Credit Contracts & Consumer Finance Act [CCCFA] to work with you if you can’t meet repayments. It’s important to get in early before you miss payments. Once you’re two months in default, lenders are no longer required to consider hardship applications. “Lenders” include utilities companies, if you’re not going to be able to make repayments on time.

If you’re reading this on Christmas Day or another public holiday then you might well need to wait for an appointment. In the meantime, there are some resources online at Moneytalks.co.nz/resources including a financial plan of action, and a simple budget, although these are best worked through with a mentor.

You can use this time to get prepared. Get all of your bills and statements to hand. Sometimes the process of collecting bills and other paperwork either online or hard copy and making lists or a spreadsheet can reduce stress.

Some people succeed at DIY debt reduction strategies. They might use tried and tested methods. The snowball method, for example, involves paying the smallest balance first. This method brings quick wins on the board, which is motivating. The avalanche method tackles the most costly debt first, reducing interest payments fastest.

Or for people with compulsive/addictive debt, consider getting in touch with Debtors Anonymous via the website:12steps.nz.

For a longer-term fix, consider attending a free money management course such as CAP Money Capnz.org. Your mentor can help you find one.