To Pay Off Debt Calculator

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					                                              debt




Managing debt
It’s easy to get into,
harder to get out.


Inside . . .
     Think before you go into debt

     Know your borrowing options

     Pay off debt or save?

     Get out of debt fast


brought to you by the retirement commission
                                                                                                                                                                  debt



Think before you go into debt
    It’s good to be able to borrow         Do you need to borrow?                    2   Borrow to invest in an asset you need              Don’t be sucked in by
    money. It can help you build up                                                  Some assets are good. Once you’ve paid for             easy credit
    assets – like a house, a business or                                             them, you have something of value that you             Make an informed decision
    an education. But debt can also be     At Sorted, we have three simple rules     could sell if you had to.                              – don’t let easy credit lead you
    a trap. The interest you pay on debt   about borrowing and saving:                                                                      to spend more than if you were
                                                                                     There are two main types of assets:
    sucks your money away from you         1 Ask yourself ‘do I really need the                                                             spending from your savings.
    and stops you building your wealth         item or service I want to buy –       Value builders are assets that are likely to hold      If you had to take the money
    or ‘net worth’.                            and can I afford it?’                 their value, grow in value or give you income          out of your savings account
                                                                                     after you’ve paid for them. Value builders include     to pay for this, would you?
    Your net worth is what you own,        Deciding whether you can afford to
                                                                                     houses (although they can lose value) and
    less what you owe.                     borrow money involves more than
                                                                                     education, which improves your job prospects
    Going into debt is a big decision.     just deciding if you can meet the loan
                                                                                     and ability to earn income.
    When you have debt, your life          repayments.                                                                                          Use the Regular Savings
                                                                                     Value losers are assets that lose value after
    options can start to become far        For example, you may be able to afford                                                             calculator to work out how
                                                                                     you’ve paid for them, like a car. Borrowing to buy       quickly you could save the
    more limited.                          to borrow money to buy a car, but have
                                                                                     a car can be a bad move – especially if it loses          money so you don’t have
    Debt comes in many forms – credit      you worked out what it will cost to
                                                                                     value faster than you can pay the debt off.                     to borrow it.
    cards, hire purchase, mortgages,       register, run and maintain?
                                                                                     If you really need to buy a car (or any other value
    personal loans. There’s no shortage    You need to work out the full effect of
                                                                                     loser), think about saving for it, or borrowing only
    of people out there wanting to lend    the purchase on your budget before
                                                                                     part of the purchase price.
    you money.                             deciding if it’s worth borrowing for.

                                                                                     3 Save to pay for expenses or non-essentials           Know the full cost of
        Remember – getting                                                           It can be painless to pay for a meal in a              getting into debt
      into debt is easy. Getting                                                     restaurant on your credit card. But if you take        Borrowing money has a price –
                                                                                     a few months to pay off the card, it can               know the full costs before you
       out of it is much harder.
                                                                                     be very painful when you realise that interest         get into debt.
                                                                                     is making that meal more expensive every day.




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                                                                                                                                            Get your debt
                                                                                                                                                                                      debt



Pay off debt or save?
    As a rule, it makes sense to try to pay back        Get into the savings habit               ....   Combine your debts                             Know your borrowing options
    your loans as fast as possible before you
    start saving – particularly if you have high
                                                        Some people feel more comfortable               to save money                                  If you decide you need to borrow,
                                                        starting a small savings scheme
    interest debt like hire purchase or credit cards.                                                                                                  make sure it costs you as little
                                                        while they are still paying off a loan          Credit cards have higher interest than
    However, there are some cases when it’s                                                                                                            as possible.
                                                        (such as a mortgage).                           mortgages – perhaps more than twice as
    good to do both – pay off debt fast and save                                                                                                       Once you’ve decided on your best
                                                        You’ll get into the habit of saving,            much! Think about ‘consolidating’ your debts
    at the same time.                                                                                                                                  borrowing option, work out how
                                                        and start to build a small nest                 onto a lower interest mortgage.
    Joining KiwiSaver                                                                                                                                  much you can afford to borrow, and
                                                        egg. You’ll also start to build
                                                                                                        Try these online calculators                   how quickly you can pay it back.
    Even if you have debt, you may be better off        your knowledge of savings and            ....
    financially joining the government’s KiwiSaver                                                                                                     You need to take into account:
                                                        investment options, so that you’re
    retirement savings scheme because of the                                                            Thinking of saving rather than borrowing?      n   How much you want to borrow.
                                                        better prepared when you want to
    incentives offered.                                 start serious saving.                           To find out just how fast you could save the   n   The interest rate you’re
    Workplace saving                                                                                    money you need, try out the Goal Machine           likely to pay.
    Some employers offer their own subsidised                                                           calculator. Just enter how much you want       n   How long you’ll be
    retirement savings schemes. This means that                                                         to save and by when, and it does the               borrowing for.
                                                                 Use the Get out of                     calculations for you.
    for every amount you save, your employer also                                                                                                      n   How often you’ll make
                                                              Debt calculator to see
    contributes some money. You may be better                                                           Understand the real cost                           repayments.
                                                           the impact a small increase
    off paying into a scheme like this, as well as           in repayments can have.                    of a loan before you take it on.
    repaying your mortgage or other loan faster.
                                                                                                        Use the Get into Debt calculator to
    KiwiSaver also has employer contributions.                                                                                                              Find out about your rights
                                                                                                        calculate the total interest you’ll pay by
    Saving for an emergency fund                                                                        the time you pay off a loan.                        as a borrower, the different
                                                                                                                                                             ways to borrow and how
    It’s common sense to have an amount of
                                                                                                                                                             much each option costs.
    money (say two or three months’ income)
                                                                                                                                                                www.consumer.org.nz
    you can call on if the unexpected happens.
    It means you won’t have to borrow money
    or be left financially vulnerable. Saving for
    an emergency fund may not be such a good
    option if you’ve got high interest debt.




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                                                                                                                                                           Get your debt
                                                                                                                                                                          debt



Get out of debt fast                                                                        Kiwi story
       The longer you have debt that charges interest,       Compound interest applies       You can’t do without your sleep…
       the more you pay.                                     to borrowing too
       So it’s a good idea to:                               Just as you get compound        Trudy is 28, single, and working in an     about her money situation that she
                                                             interest on savings, you pay    office. She’s earning a good salary, and   isn’t sleeping at night.
       n     Get rid of your high-interest debt first
                                                             compound interest on the        she loves buying beautiful things. Over
             (such as credit cards and hire purchase).                                                                                  Trudy visits www.sorted.org.nz and
                                                             money you borrow.               the past couple of years she has built     realises that her biggest concern should
       n     See if you can increase your loan repayments                                    up quite a bit of debt, and she’s got      be improving her net worth – the
             to clear your other debt faster – but check                                     absolutely no savings. Her credit card     difference between what she owns and
             with your lender that this won’t result in                                      balance is $3,000 and she owes $1,200
             penalty payments.                                   Paying off your                                                        what she owes. So she decides to take
                                                                                             on HP.                                     a long-term view and stay focused on
       Then get saving!                                        mortgage as fast as
                                                                                             It’s high interest debt so she’s been      getting rid of her debt.
                                                               you can is a great            making a concerted effort to pay it off.   She sets a goal to pay off her credit
    ....   Get out of Debt calculator                          financial decision.           But with no savings Trudy is concerned     card and HP balance in six months.
                                                                                             about not having anything put aside        After that, she will start saving for the
           The Get out of Debt calculator will help you                                      for emergencies (like her car breaking     emergency fund.
           to work out how to get rid of your debt faster.                                   down!). In fact she is worrying so much

           Just enter the relevant figures and you’ll see
           how long it will take you to pay off each of
           your existing debts, and the interest you’ll
           pay. You’ll also see what happens if you
           increase your repayments.




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                                                                                                                                                  Get your debt
Where to now?
1   Borrowing only what you need?

2   Know the true cost of your debt?

3   Paying off your debt fast (high interest first)?



    Next step:
    e.g. use Sorted’s Get out of Debt calculator.

				
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