Managing debt

A NZ-relevant framing

Not all debt is equal. Some debt builds your financial position over time. Some quietly erodes it. Knowing which is which changes how you think about what you're carrying.

Good debt

Good debt is borrowing that either acquires an asset likely to grow in value, or generates a return greater than the cost of the debt itself.

The most common example in NZ is a mortgage. Property has historically appreciated over time, and the asset you're building with the debt — your home, or an investment property — grows in value as you pay it down. Your net worth improves on both ends: the asset side goes up, the liability side goes down.

Borrowing to invest in education that measurably increases your earning potential can also fit this category, though the NZ student loan scheme — interest-free for NZ-based borrowers — makes this lower stakes than in other countries.

Bad debt

Bad debt is borrowing for things that depreciate, or for consumption with no lasting return.

Credit card debt at 20%+ interest. Buy-now-pay-later balances that roll over. A personal loan for a holiday or a TV. A car loan on a vehicle that's worth half what you paid within three years.

None of these are moral failures. They're just expensive ways to bring future spending into the present.

The cost is the interest, and at credit card rates, that cost compounds fast. 20% interest on a $1000 debt is adds $200 to that original $1000. Now you owe $1200, interest is calcualted from the total $1200 which is an extra $240. This is how your debt compounds.

That money you borrowed to purchase that new car costs you substantially more than the amount you borrowed.

The grey areas

A car loan is often unavoidable — you need transport to earn income. The question is whether the vehicle you're borrowing for matches what you actually need, or whether you're borrowing more than necessary for something that loses value quickly.

A mortgage on a second property is good debt if the numbers work — but if the rent doesn't cover the costs and you're counting entirely on capital gain, it's a bet, not a plan.

How to think about your debt mix

Look at what you're carrying and ask: is this debt attached to something that grows or generates a return? Or is it the cost of past consumption?

High-rate consumer debt — credit cards, personal loans — should be the priority to clear. Mortgage debt, managed carefully, is part of building long-term wealth.

How to use it with SortMe

SortMe shows your account balances, including credit cards and loans. Use that view to categorise what you're carrying and focus your repayment energy on the high-interest debt first.

When to get advice

If you're considering taking on new debt — a second property, a significant personal loan, a business investment — a financial adviser can help you assess whether the return justifies the cost. Naked Finance works with SortMe users on exactly these decisions.

These articles are financial education, not personalised financial advice. For advice specific to your situation, talk to a licensed financial adviser.