'Debt is the worst poverty.'
- Moni Ora
- Jul 1, 2021
- 3 min read
Updated: Oct 20
'Debt is the worst poverty' - Quote by Thomas Fuller
Unmanageable debt creates poverty. It is stressful and negatively impacts the quality of our lives and our relationships.
In 2019, a Gisborne Herald reporter interviewed Moni Ora for an article emphasising the need to review the Credit Contract Act. We were concerned that people were getting sucked into high-interest debt without proper checks from the creditor to ensure the customer could afford their payments.
As a result of the review, changes were made to the Act, which tightened up the legislation around interest rates and creditor responsibilities. However, many in the Budgeting Sector felt the legislation didn't go far enough.
Soon after, Buy-Now-Pay-Later options, which were not covered under the Act, started to appear. BNPL offered easy no-cost debt—except when a payment was missed.
By September 2021, Consumer reported that nearly four out of ten consumers were using BNPL options, and one in seven had incurred missed payment fees. Consumer estimated that these late fees could total over $10 million annually.
By 2024, Afterpay collected more than $18.5 million in late fees in one year alone. It is important to note that Afterpay is just one of many BNPL providers; therefore, $18.5 million represents only a portion of the revenue collected from BNPL providers.
Reference: Afterpay NZ Limited Annual report and financial statements For the year ended 31 December 2024
Do the math... $18,586,763 in late fees, charged at $10 for the first missed payment and $7 for each additional week of non-payment. This comes from a company that advertises itself as offering easy, no-cost debt.
Despite legislative reforms, the allure of slick marketing campaigns remains strong, and people continue to accumulate unmanageable debt and become further impoverished.
The solution to debt traps lies in education and adjusting spending habits, rather than legislation
Financial Mentors are skilled in helping people to assess their spending habits to guide them toward achieving their goals.
Although budget adjustments are easy to make on a spreadsheet and may even seem minor, changing one's spending habits demands dedicated effort. However, it is achievable to break free from the debt trap that was so easy to stumble into.
To become debt-free, one must first decide to stop booking up and commit to not taking on any new debt. Then start drafting a plan to clear the debt you have.
Create and follow a realistic budget plan
Open an emergency savings account and start putting a little aside each payday
Emergency savings protects against debt traps when the unexpected happens
Then use your budget plan to find money that can be put toward clearing debt.
Take a critical look at your everyday spending to see if there is room to be more cost-effective.
See what cutbacks you can make.
Reassign the money you save from cutbacks to pay off debt.
Easy-to-follow Debt Reduction Strategy
You may have heard of the Debt Snowball and Debt Avalanche methods, which help clear debt by prioritising balances or interest rates. Both methods are effective and share many similarities.
It doesn't matter which one you use; the important thing is to make a start.
The Debt Snowball is straightforward. It focuses on quickly eliminating smaller debts, offers a sense of achievement and helps maintain motivation until all your debts are paid off.
Start with these 5 steps:
List debts from lowest to highest.
Make minimum payments on all debts except the smallest.
Pay extra on the smallest debt, in addition to the usual minimum payment.
Once paid off, apply its full payment to the next smallest debt.
Repeat until all debt is cleared.
At Moni Ora, you choose your own path. A Moni Ora Financial Mentor can help you understand your current financial situation by ensuring you have accurate information to make informed decisions. This post outlines the basic process, which makes it look easy, although it's not always as straightforward to do.
If you want help, call us on 0800 115 370.
Whether you're in crisis, need help managing debt, or want to plan a better future, our Financial Mentors are local and here to support you.
Our service is always confidential and free of charge.
Book your free, confidential appointment now: call 0800 115 370
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