Rob Stock.
A man tasked with lifting Maori financial capability has walked the walk, writes
Alexander Stevens killed $20,000 of consumer debt in 12 months. He had a strong incentive – he’d just been hired by the Government-funded Commission for Financial Capability, so he had to get his finances into order.
‘‘Last year in June when I joined the commission I felt a need to get my own financial kumara patch sorted,’’ says Stevens, whose background is in community and mental health services.
Stevens uses the term ‘‘kumara patch’’ because his role at the commission is to engage Maori communities across the country to lift their financial capabilities.
‘‘I reasoned I could not talk the talk, if I could not walk the walk,’’ he says.
At the time of his hiring, this was easier said than done.
He had two credit cards, a personal loan, his car was financed and in the background was a student loan.
Like many facing up to debts they want gone, Stevens felt intimidated by the task ahead. Borrowing is easy and quick. Paying debts off is hard, and, usually slow.
‘‘The mountain of debt was huge, but not all of it bad. A lot of it has enabled me to get ahead,’’ Stevens said.
‘‘A student loan, for example, has allowed me to specialise in being a health professional and counsellor. I then completed two master’s [degrees] focusing on Maori health and wellbeing, which enabled me to have a higher income with new doors and career paths opening in front of me.
‘‘The debt associated with my career was worth the investment. My credit cards on the other hand, not so much.’’
Not so much, but Stevens, a stylish man, insists he does not regret owning 35 watches.
Once you have debts, the ability to repay them, and cope with daily life, can become a challenge.
Stevens had little choice but to knuckle down, and channel as much of his income, including his earnings from a second job, into repayments.
But willpower is a muscle that gets stronger with use.
‘‘Walking past shops and ignoring things that shout out ‘Buy me!’ has been a practice of willpower and finding new walking paths to get to work was needed. I blocked emails from stores saying ‘We have not seen you in a while’ trying to tempt me with discounts and points on cards.’’
There was a psychological tipping point.
‘‘For the first couple of months it was hard and all-consuming, but soon enough regular payments became the norm and eventually I stopped thinking about the money I didn’t have, but rather the money I would soon have.’’
He marked the milestones, and got support from friends, as well as advice from colleagues at the commission.
‘‘I paid off and cancelled one of my credit cards last year with my friend who walked with me to the bank to make sure I did,’’ he says.
A bit of support was needed. Bank staff seemed genuinely disappointed, he says. They tried hard to get him to change his mind.
Once debt repayment gets on a roll, it becomes easier and easier, as less and less money is fritted away in interest.
Stevens is on track to be totally debt-free by June next year, student debt included.
The next aspiration: save for a house and start KiwiSaver.
In debt repayment circles, there are conflicting views on the best strategy to tackle debt.
For some, ‘‘snowballing’’ is the best course to follow.
Snowballing is the practice of paying off your highest-interest debt first, while paying off lowerinterest debts at the minimum repayment rates. When the highest interest debt is gone, you switch onto the debt with the next highest interest rate, and so on.
Imagine you have a 19.95 per cent GEM Visa card debt, and a 25.5 per cent Farmers Card debt. The sensible thing to do is to get rid of the Farmers Card debt first as it has extraordinarily high interest rates.
Perhaps you can transfer the debts on to a cheaper card, such as a low-interest credit card, or do a balance transfer to the credit cards of a new bank. Some of the deals, like that of ASB, are offering zero per cent debt.
Remember though, banks offer balance transfer deals not to help people get out of debt, but because the people who take them have a habit of taking on debt, and paying banks interest, which pleases bank shareholders.
Similarly, debt consolidation is one of the top reasons people take out loans with Harmoney, the online lender. This can reduce the cost of debt, making it easier to pay off, but it is essential that borrowers close all the debt accounts they previously used to get into trouble.
Research suggests there might be better strategies than ‘‘snowballing’’ for some indebted people.
A University of Michigan study of debt repayment found that many borrowers did better by knocking off their smallest debt first, and only then turning their mind to the next-smallest.
Perhaps the encouragement of saying goodbye to one lender after another provides useful motivation to keep up rapid repayments.
But borrower beware. To pay off debt, and to avoid consumer debt in the future, it’s important to address the reasons for going into the red in the first place, the commission says.
The reasons may include one or more of the following: low pay, ignorance, over-spending, not having an emergency account, personal unhappiness, and not having a budget or a financial plan.
‘‘For the first couple of months it was hard and allconsuming, but soon enough regular payments became the norm.’’ Alexander Stevens of the Commission for Financial Capability, left