Debt goes in 'too hard' basket for many Kiwis

Kiwis have $5.25 billion in credit card debt, two-thirds at an average interest of 18 per cent. Photo / Steven McNicholl

People want less debt but half of them have no plans to do anything differently, a survey says, although in continuing tough economic conditions almost two-thirds have vowed to spend less.

The Nielsen survey, commissioned by money guide Sorted, found that 56 per cent of respondents said they were less inclined to take on debt as a result of the recession.

However, asked if they would manage their debt differently in the next year, 50 per cent said they would continue as they do now.

Only one in four said they would "do something differently", including not getting into further debt.

Of those who planned to make a change, one in seven said they would cut up their credit cards.

Overall, one in 16 said they would pay their high-interest debts first.

Sorted spokesman David Kneebone said New Zealanders had reduced their appetite for "dumb debt" thanks to the recession.

"If the downturn has had a silver lining, it's this much healthier attitude towards unproductive debt. Before the recession New Zealanders were hungry for credit, often borrowing to finance their discretionary consumption at high interest rates," he said.

"High-interest debt that could otherwise be avoided is dumb debt, and it's always going to have a negative impact on your financial wellbeing. New Zealanders seem to be waking up to that now."

Reserve Bank figures back up the findings, showing that consumer debt fell by 5.9 per cent between December 2008 and February 2011.

New Zealanders are spending 99c for every dollar they earn after tax - a sharp contrast with pre-recession spending of $1.10 for every dollar earned, in March 2007.

The survey found that 62 per cent of respondents' financial plans included spending less.

But Mr Kneebone said New Zealanders still held $5.25 billion total in credit card debt, two-thirds of it accumulating interest at an average of 18 per cent.

Cardholders will accrue $650 million in interest during a year.

Total consumer debt in New Zealand stands at $11.96 billion, made up of hire purchase, store cards, personal term loans, credit cards and overdrafts.

"Before taking on debt, it's important people consider whether it's necessary and work out what it will really cost over time, as interest can add up much faster than some people realise," Mr Kneebone said.

"For those already facing a mountain of debt, the most important step is to prioritise high interest debt and pay that back first. Then look at areas where spending can be cut so additional money can be put towards becoming debt free faster."