"You need to be really honest with yourself and think about things that people hope won't be needed."
The federation has a budgeting calculator on www.familybudgeting.org.nz to help people consider as many potential costs as possible. Anybody struggling with budgeting can also get help from their local branch.
Although each purchase, on its own, may not be a major commitment, together they can quickly add up.
Mrs Fox says budget advisers often see people struggling to cope when they lose their job, their family situation changes, or unexpected house or car repairs crop up.
She recommends that households have only one hire purchase going at any one time to avoid overcommitting.
"If you lost your job could you keep up your payments for a couple of weeks while you find a new one?"
Consumers can take advantage of interest-free deals to buy items they need, but she says they should aim to pay off goods before the free period ends to avoid paying interest.
Reading contracts carefully is essential but Mrs Fox says that not everybody feels able to do this.
"Ask if you can take it away to think about it or have somebody look at it. If the lender says no, you need to be very cautious."
Sorted.org.nz also offers advice on things to consider before borrowing, starting with whether you really need the item or service, and if you need it immediately or if you can wait until you have saved for it. The site recommends saving for bills and "wants", and borrowing only on assets that can be sold to repay the loan if need be, or on items that add to your potential income such as education or work-related equipment.
If you decide you do need to borrow, find the best interest rate and check the fees and charges carefully. There is a lot of variation in rates between banks, retailers and credit cards, so it pays to shop around.
What are your rights?
* When you borrow money or sign a credit deal, the lender must provide you with accurate information, in writing, about what the loan will cost you.
* This disclosure document must include how much your repayments will be, how much interest you will be charged, the fees involved, how the interest is calculated, insurance charges, what happens if you don't make payments or want to make early payments, and your rights concerning cancelling the contract.
* You can cancel a credit contract within three days of receiving the written disclosure statement. If this is a hire purchase you must still buy any goods you have taken home.
* Any fees must be directly linked to the costs of the lender.
* You can ask to change the contract if your circumstances change unexpectedly, as long as you are not in arrears. You can extend the timespan of the loan or take a repayment break if you are hit by changes like illness, injury or redundancy.
* The lender can repossess goods if you fall behind in payments. This must be explained in your contract.
* You may be required to pay insurance for the purchased item and/or repayment insurance.
* If you feel your contract is harsh or unreasonable, you can take it to the Disputes Tribunal or the District Court, which have the power to demand changes in loan terms. However, it is best to approach the lender first.
www.consumer.org.nz
How much extra does something cost you when you borrow to buy it?
Flat-screen, HD televisions are on special and you want to update your old set. But you don't have the money to hand and you have to borrow. Is that new television still going to be a good deal once you have paid fees and interest? Most banks have calculators on their websites to help you work out the total cost of a loan. Using www.sorted.org.nz's hire purchase calculator, we worked out what a $1000 telelvision actually costs, assuming a $70 administration fee, a 10 per cent interest rate and a one-year interest-free period.
