Financial advisors say now is the time to pay back debt. Photo: 123rf
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Many of us are back at work this week - and worrying about paying our debts after the seasonal splurge on presents and holidays.
Financial advisors say now is the time to pay what's owed, because harder times are likely to be just around the corner.
Financial Advice New Zealand chief executive Katrina Shanks warned higher interest rates and a possible recession were on the horizon.
She said that meant debt should be be paid off before it spiralled out of control.
"Stop the spending, don't run any more debt while you have debt sitting there, don't do any buy now pay laters, no more credit card purchases. Just spending the money you earn and put those brakes on."
Katrina Shanks. Photo: NATIONAL PARTY
Easier said than done, right?
Shanks has many tips which do not involve sacrifices, like comparing your power and phone plans, or taking the bus instead of the car.
But if you could forgo that third barista coffee or takeaway order for the week, that might not be a bad idea, she said.
Accommodation is the largest expense for most households, so for those with mortgages, she recommended going through payments with a ruler to see where they could free up some money.
"Looking at your biggest expenses is the key, because that's where you make the most savings."
Some families will also face another wave of receipts with children going back to school, but Shanks said there were sensible ways to slim down the supplies shop bill.
"You don't have to buy the most expensive things, second-hand's not bad either, lots of op shops have good things coming in around this time of the year."
With those savings, she said the key was to use them and apply them to debt now.
"Don't sit on those savings, if you've got debt apply it to those which have the highest interest rates on them, the ones which are the most expensive."
With a forecasted recession and the official cash rate expected to rise, possibly to 5.5 percent later this year, things will not be easy for many.
Add on potential job losses and the fact inflation may not have peaked, Shanks said it was important to be prepared.
"The really smart thing going into a recession is building up that emergency fund, so that if you do go into debt or spend money you don't have, you can dip into that fund to help you out.
"Be honest with yourself and your partner about where you sit financially, and work together to find solutions so you can cope when the unexpected does happen."
Because there was no knowing what 2023 may throw your way.