Debt consolidation in NZ: when one repayment helps and when it costs more

Three payments fall due before payday. Another comes out next week. Even when you know roughly what you owe, keeping track can take more energy than it should.

A debt consolidation loan replaces selected debts with a new loan. You then repay that loan on its own schedule. Having one payment can make life easier, but the useful question is whether the new arrangement improves your situation over the whole repayment period.

Decide what you want to improve

Write down your main reason for considering consolidation. Is it fewer payment dates, a lower total cost, a manageable weekly payment, or a clear date when the debt will be gone? You may want all four, but an offer will not necessarily deliver them together.

Sorted’s guide to debt consolidation explains the central trade-off: smaller repayments spread over longer can mean paying more overall. A simpler payment schedule also needs a plan for avoiding new debt alongside it.

If your priority is immediate breathing room, say so. Being clear about that helps you judge whether a higher total cost is an acceptable trade-off, rather than discovering it later.

Make a before-and-after page

Start with the debts you actually want to include. For each one, record the current balance, repayment, payment frequency and expected finish date. Ask the lender for a current settlement figure and whether paying it off creates any charge. A balance shown in an app may not be the exact amount needed on the settlement date.

Beside that, put the proposed loan’s repayment, term, fees and total amount payable. Consumer Protection’s guide to the true cost of borrowing recommends adding interest and fees to the comparison, rather than focusing on the advertised repayment.

Keep the comparison consistent. Convert everything to the same payment frequency, and check whether a quoted total already includes fees before adding them again. Include any costs of closing the old debts that sit outside the new quote.

A lower payment can buy more time at a price

Consider this fictional example. Maia’s existing debts would require another 52 weekly payments totalling $180 a week: $9,360 remaining altogether. A consolidation offer would mean 104 weekly payments of $110: $11,440 altogether. Assume these illustrative totals include every relevant cost.

For the first 52 weeks, the offer reduces the weekly payment by $70. It then requires another 52 weekly payments of $110 after the existing debts would have been cleared, and costs $2,080 more overall. That may be a meaningful choice if the current payment is unmanageable. It is not a saving simply because $110 looks easier than $180.

Maia could ask what a shorter term would look like, or whether a smaller amount could be refinanced. She could also compare an agreed change with her existing lenders. The next step is to examine those actual options, rather than assume the first offer is the only workable one.

Plan what happens after the old balances are paid

Consolidation clears a balance; it does not automatically change how an account can be used. Decide what you want to happen to each credit card, store account or other facility. Ask how closure or a limit change works, and check any recurring payments before making changes.

Also decide who pays the old lenders and how you will confirm settlement. Keep the confirmations, then check that no small balance remains. Nectar customers can find guidance on requesting a settlement figure in the Nectar Money FAQs.

Give the new repayment a place in your payday plan. Leave room for costs that do not arrive every week, such as registration, school expenses or dental treatment. Otherwise the next irregular bill can put pressure on the same credit you have just cleared.

Pause if the new payment still does not fit

Before signing, check that you can answer these questions:

• What is the total remaining cost of keeping the debts as they are?
• What will consolidation cost, including settlement and new-loan fees?
• When will the final payment be made?
• Does the payment fit after essential living costs and irregular bills?
• Is any property being offered as security?
• What is the plan for the accounts being paid off?

If the budget still has a shortfall, another loan may leave the underlying problem unresolved. Consumer Protection’s payment-problems guidance explains repayment discussions, hardship and free financial mentoring. Contacting an existing lender early can be a useful first step.

One repayment is helpful when it gives you an arrangement you understand and can sustain. Put the finish date and total cost beside the weekly figure before deciding.