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Families with debts piling up on them after Christmas spending should seek help before the situation gets worse, says the Families Commission.
A recent study by the Commission shows that families that seek help for their financial problems early are far more likely to get back control of their debt.
Escaping the Debt Trap: Experiences of NZ Families Accessing Budgeting Services, released in December, was developed in conjunction with the New Zealand Federation of Family Budgeting Services and the Salvation Army. The research demonstrates that budgeting services make a real difference, and empower families with the confidence and skills they need to overcome problem debt.
Families Commissioner Gregory Fortuin said asking for help can alleviate months, even years, of hardship.
“Budgeting services give support, advice, information, and in some cases even help sort out realistic repayment schedules with creditors,” he said.
One participant told researchers:
I thought budget advisers were just to sort your finances, just to help you budget your money … I didn’t know that they had the power to sort out my finances with the finance company ... if only I knew I could have done it a long time ago. (Participant 36)
Mr Fortuin said: “It is best to get help early. This might be when a major life event occurs, such as diagnosis with a chronic illness, disability, losing a job, having a baby or separation. Or it might be when you first become aware that your expenses are getting out of hand. Many families will be feeling the pinch now their credit card bills are coming in after Christmas.
“Families sometimes feel they have little power over their finances. When debt piles up this sense of powerlessness deepens. If you are worried, seek help. Budgeting services help you get back on top of things.”
Caregivers and parents were motivated to create change because they wanted better lives for their children, the study showed, but it was the help of budgeting services that enabled them to take the necessary steps.
The study also revealed that families were often unaware of the high interest they will have to pay when they take out debt through creditors such as finance companies, or hire purchase. Nor do they always make the link that a high interest rate means a loan will cost them more.
“The situation can be worse for low income families,” Mr Fortuin says. “Often no one else will loan to low-income families so lenders that do involve themselves at this end of the market are able to charge high rates, not just because their risks are higher but because they have less competition.
“If you think you have to purchase something on credit make sure you shop around for the best interest rate, and read the fine print on the contract to check for other charges or penalties. You wouldn’t buy a car or a television without looking for the best deal, so why take on debt without looking for the best deal?
“If you aren’t sure about how to go about working out what the best interest rate is, you should contact budgeting services for advice on how to read the fine print"
To download the report, Escaping the Debt Trap: Experiences of NZ Families Accessing Budgeting Services visit: www.familiescommission.govt.nz/research/debt/escaping-the-debt-trap
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