What to do if it's hard to repay loans, credit contracts, fines and other debt. How to get help and get back on track.
Checklist to deal with debt
Seek support. You are not in it alone. Lots of people have trouble with debt and money matters. Help is at hand, whether you prefer to talk in person or use online tools. The MoneyTalks helpline is a good place to start.
If you struggle to pay on time, it's best your lender knows as soon as possible. A free financial mentor can talk to the lender on your behalf. They can also help create a realistic budget and repayment plan, based on your income and living costs.
Free confidential advice(external link) — MoneyTalks
Start tackling your debt(external link) — Sorted
Check your debts. Add up all money you owe. If you think a lender has acted unfairly, or has lent you more than you can afford, get advice.
Debt calculator(external link) — Sorted
Check your credit score. Get any errors corrected, as these can lower your credit score. If you have no credit or bad credit, take steps to improve it.
How to change your credit score
Options to get back on track
Being in debt can be stressful. But it's more stressful to have a lender or debt collector chase you for overdue debt.
If you struggle to repay, it's best to act as soon as possible, whether you owe money to a finance company, bank, a friend or family member, or to a government agency.
Find out what you can do to make repaying more manageable. Many lenders prefer to change your repayments, rather than risk missed payments.
Agree to change repayments
This might mean asking for more time to pay, or paying a smaller amount over a longer period. Another option is a repayment holiday, which postpones your payments for a set time.
A new repayment plan is likely to cost more over time due to extra interest and admin fees. But it might be worth it to pay less each week or month, especially if this will reduce the chance of missed payments.
A free financial mentor can:
- help work out what you can afford
- talk to lenders or others on your behalf.
Keeping your new repayments up to date can help improve your credit score.
Apply for hardship
Hardship is a formal application to change your payment schedule. All lenders must have a hardship application process.
It's only an option if an unexpected change in your life makes it hard to afford repayments. Examples of life events that count as hardship are job loss, serious illness or injury, relationship breakdown, or if your partner dies. Unsure if you qualify for hardship? Ask your lender or a free financial mentor.
There are three options:
- More time to pay off the loan, which reduces each payment amount.
- A payment holiday.
- Both a longer loan term (more time to pay) and a payment holiday.
Apply for hardship in writing. This can be a letter or email, or a form if your lender has one. Make sure you:
- say which option for changing payments you want
- explain which unexpected life event makes repaying difficult
- include any proof.
Apply as soon as you find it hard to pay. There are time limits, eg you must be less than two months behind on payments. For details, see the Commerce Commission website.
What to do if you are struggling with debt(external link) — Commerce Commission
Once you apply, lenders must:
- tell you their decision — and their reasons — within 20 working days
- not charge fees to consider hardship applications (they can charge fees to change your loan, eg to add a payment holiday)
- help you understand the impact of payment changes
- tell you how much more you may owe as a result
- suspend any repossession action until a decision is made.
If the lender takes too long, or doesn't seem to be reviewing your application fairly, you can complain to their dispute resolution scheme.
Example — Hardship accepted
Emmy has cancer and needs 10 weeks off work. Her boss can only offer paid leave for a fortnight. With her income about to drop, Emmy knows it will be harder to pay her car loan. She applies for hardship, asking for a repayment holiday. Emmy includes details of the illness and paperwork showing she is on unpaid leave. The finance company accepts her application, postponing her regular payments for three months.
Example — Hardship declined
Harry buys a motorbike on finance. When Harry's seasonal job ends, he misses a monthly repayment and ignores the reminders. Three months on, he's still behind on payments. A friend mentions hardship, so Harry applies for reduced payments and more time to pay. The finance company rejects his application. They explain it's because Harry's payments are more than two months overdue — that's the time limit for applying for hardship.
If you get a repossession notice but cannot pay what you owe, you can offer to voluntarily hand over the item, eg car bought on finance or hire purchase TV. This may save on repossession costs. It also means no visit from a repo agent.
If the lender agrees, they will sell your item. If the sale price doesn't cover what you owe — sometimes it's too low — you must repay the rest. Once your item is sold, it freezes your account, meaning interest and fees will no longer be added to what you owe.
If you don't pay
If you get behind on payments but do nothing, your lender — or others you owe money to — will act to recover the overdue debt. What they can do depends on the type of debt, how much you owe, your personal circumstances, and what's allowed in your credit contract.
Timeframe: Lenders and others have six years to recover overdue debt. This starts from either:
- date you fell behind on payments
- date you acknowledge the overdue debt in writing
- date you make a part-payment.
If they take longer than six years to first act, you generally do not have to pay.
Common steps lenders may take:
- Use a debt collection agency.
- Report your debt to credit reporting agencies, which will affect your credit score.
- Repossess and sell any assets named as security in your credit contract, eg car or home, or items bought on credit (hire purchase).
- If you have a guarantor, chase them to pay what you owe.
- If your credit contract includes a wage deduction authority, ask your employer to take money from your pay. You can refuse permission, but must find another way to repay your debt.
If you still don't pay, the lender may take you to court. The court will consider both sides and decide what you owe the lender. This is called a judgement debt. It will go on your credit record.
If you don't pay the judgement debt, the lender can apply in court for an attachment order to take money directly from your pay or benefit. Worried you can't afford it? Ask the court to have a financial assessment done — or get help from a free financial mentor.
Free confidential advice(external link) — MoneyTalks
Debt collection and repossession
Bankruptcy and insolvency options
Budget calculator(external link) — Insolvency and Trustee Service
Common causes of payment problems
Whatever the cause, you can get help to solve payment problems. A good first step is to get confidential advice from a free financial mentor. They can:
- talk to lenders on your behalf
- check if the lender has done something they shouldn't, eg unfair fees, no affordability test
- help create a budget to fit your needs
- point you towards other help, eg lower-cost finance options, food parcels, community lawyers
- dig into what might be causing your payment problems, eg spending habits or a lender acting unfairly
- help you complain to the lender's dispute resolution scheme, if needed.
Free confidential budgeting advice(external link) — MoneyTalks
How to tackle these common problems:
Do your spending habits lead you into debt? This is less about how much you spend, and more about why you spend.
Common examples include multiple buy now, pay later purchases, or borrowing to buy a car or smartphone to keep up with friends.
A free financial mentor can help spot your spending patterns and find ways to get your debts under control. As well as budgeting, this could include:
- repayment plan agreed with lender
- selling your asset(s) to help repay what you owe, eg car or jewellery
- debt consolidation loan, if suitable
- insolvency options, if you cannot repay your debts.
When your credit score is low, it can be hard to access affordable finance.
If you're on a low income, you may be eligible for a low-cost loan from a microfinance provider. Work and Income also offers one-off loans and grants.
Don't forget your bank, if you have one. If they agree to lend you money, keeping repayments up to date will help your credit score.
Lenders must check if you can afford repayments before they lend you money. So must car dealers setting up vehicle finance, because they are the lender's agent.
- looking at your income and living costs, eg rent, food, power bills, medical bills
- working out if you have enough money left over to cover loan repayments.
If a loan's repayments make it very hard to afford your regular living costs, it's possible the lender (or car dealer) didn't do an affordability assessment, or failed to do it properly. This breaks the Credit Contracts and Consumer Finance Act's responsible lending requirements.
You have good reason to ask the lender to:
- reduce what you owe, eg cancel or reduce interest and/or fees
- agree an affordable repayment plan.
Contact the lender, or get a financial mentor to do this for you. If the lender (or car dealer) doesn't agree, you can complain to their dispute resolution scheme.
If you can't afford repayments because you gave incorrect information about your income and costs — and the lender had no good reason to believe your information was wrong — the lender may not be held responsible. Get help from to work out a repayment plan, eg from a free financial mentor.
If an unexpected life event suddenly makes it hard to afford repayments — eg job loss, serious illness or injury, death of a partner — you might be eligible for hardship. This is a formal application to change your payment schedule.
Lenders must share information about the total amount owed, including all fees and interest payments.
The Credit Contracts and Consumer Finance Act limits how much lenders can charge on interest and fees for high-cost loans:
- lenders cannot ask you to pay back more than twice the amount borrowed
- they cannot charge more than 0.8% of the unpaid loan balance in interest and fees per day when averaged across the loan term— and cannot charge compound interest
- default fees for missed payments must be $30 or less.
Other fees must also be reasonable, which means enough to cover the lender's costs but not earn a profit.
- establishment and admin fees
- early repayment fees
- default fees if you don't pay on time.
If you weren't told about a fee or other loan cost — or it seems unfairly high — you can challenge the amount. Contact the lender, or get a financial mentor to do this for you. If the lender doesn't agree, you can complain to their dispute resolution scheme.
If things go wrong with your contract
If you fall behind on payments, your lender should follow up promptly. This is to give you a chance to get back up to date before penalty costs stack up.
The lender's payment demands must be reasonable. For example, they cannot give you just a few days to repay the loan in full.
Nor can the lender take too long to act on missed payments, resulting in too many extra costs piling on top of what you owe, eg admin fees and penalty interest. The delay can be seen as unreasonable behaviour by dispute resolution schemes and the courts.
Make an official complaint
If something goes wrong, first talk to your lender, debt collector or others you owe money. If you can't agree a solution, you can take your complaint further.
In most cases, the next step is to contact your lender's financial dispute resolution scheme. But if it's a problem connected to your personal information, contact the Privacy Commissioner.
Dispute resolution scheme
All banks, lenders and financial advisers must belong to a financial dispute resolution scheme. This independent body can:
- give you information about how lenders should act
- share tips on how to complain to your lender
- look into certain complaints when you and your lender cannot agree on a solution.
It's free for you talk to them and make a complaint. Or a free financial mentor can do this for you. Start by contacting the MoneyTalks helpline.
Free confidential advice(external link) — MoneyTalks
There are four financial dispute resolution schemes. To find out which your lender belongs to, you can either:
- Ask your lender.
- Phone any one of the four schemes to find out. For contact details, see:
Financial dispute resolution schemes
You can also check the lender's entry on the Financial Service Providers Register:
Search the register(external link) — Financial Service Providers Register
If the dispute scheme investigates your complaint, it might:
- Reduce the amount you owe, eg refund some fees or interest.
- Award compensation, eg for inconvenience.
- Report the lender to the Commerce Commission if there's evidence they often break the rules.
- Find the lender did nothing wrong.
Lenders, debt collectors and other creditors (people or organisations you owe money) must not tell family, friends, employer or others about your debt without your consent. If they do, you can complain for free to the Privacy Commissioner.
Making a complaint(external link) — Office of the Privacy Commissioner
Get support at any point from:
- MoneyTalks: This helpline gives free budgeting advice to individuals, family and whānau. Financial mentors can help you understand your financial situation, organise your debt and plan for the future. They can also put you in touch with a local budgeting service and help with issues you're having with lenders. Phone 0800 345 123, or use live chat, email or text, if you prefer.
Contact information(external link) — MoneyTalks
- Community Law Centre: Free one-on-one legal advice for people with limited finances. The organisation has 24 centres throughout the country. You can find legal information and other resources on its website.
Our law centres(external link) — Community Law Centre