Deluded. That's what a lot of people are about their debts.

There are those who buy goods on interest-free hire purchase (HP) deals but don't pay them off in time and end up paying all the interest they thought they'd avoid.

Then there are those who view credit card limits as their own money and don't even realise that they're in debt. It's just the credit card, after all.

Or they think: "It doesn't matter, does it, if it's only for day-to-day expenses?" Wrong. They're the worst expenses to be throwing on the credit card to pay on the never-never.

Our expectations in life have changed and our plastic-fantastic cards make it all too easy to live for the day without knowledge or care for the future. They make owning two cars, having the latest tech toys and taking annual holidays easy, even if they're not really affordable.

Our attitudes to mortgages have changed in a generation as well. Plenty of people see the mortgage as something to dip into to buy consumer goods. It gives the lie to the idea that mortgage debt is good debt. It's not if your car, TV, new bathroom, overseas trip or new sofa has been bought with it.

I read that one in 10 people in the United Kingdom are overdrawn permanently and a third of the population go into the red once a year. We're not much different.

Here in New Zealand, we've got credit card debts of $5.2 billion. Of that, $3.6 billion is interest-bearing and the interest on that is $654 million a year, according to the Retirement Commission. That's $654 million wasted. There's another $2.9 billion borrowed on HP and personal and vehicle loans.

What we don't do enough of, according to the Retirement Commission, is stop to think before we get into debt. It should be a big decision but it's too easy to be sucked in by easy credit. Some people don't even realise they have a debt problem. If, however, you answer "yes" to two or more of these questions, then you really need to question your reliance on debt:

*Do you pay interest on your credit card balance?

*Have you bought consumer goods by extending your mortgage or using revolving credit in the past two years?

*Do you dip into the red on your overdraft?

*Have you been refused credit in the past two years?

*Do you worry about your debt repayments?

*Have you borrowed from one source to make monthly repayments?

*Did you set up more than half of your borrowing within the past two years?

*Do you take cash advances on your credit cards?

*Do you use more than one credit card because others are maxed out?

*Could you live without a credit card?

However you try to justify it, these are all no-nos that many people do on a regular basis.

The trouble is that a lot of people get the wrong financial advice from day one. The ANZ-Retirement Commission Financial Knowledge Survey found that 35 per cent of Kiwis get their financial advice from family and friends. That's all well and good if the people giving the advice understand money. Many don't.

Although financially literate people will share their views with 10 people, so will the financially illiterate. A classic example of someone who learned financial lessons from the wrong person is's unofficial poster girl Willamene.

When Willamene got her first pay cheque her father took her to a local store to buy a stereo on HP. It was a pattern she repeated for 20 years, knowing no better.

Willamene had no idea that she'd been given bad financial advice and just assumed it was the norm. The call-centre operator from Wellington has since turned her life around. She has repaid debt and is now saving for a dream trip to New York.

If Willamene, who has the self-discipline to save, had learned the right lessons from day one she would be in a very different financial position now.

HP isn't the only source of bad debt. Many people see credit as their money, not debt. And they use this debt to do things such as buy alcohol and cigarettes, gamble and tithe.

The Retirement Commissioner would love to see people asking themselves whether they're getting good advice from friends and family, and also from other common sources including bank staff and the media.

Back on the subject of good debt and bad debt, there is a lot of bad debt hidden in mortgage figures.

A $10,000 car bought using money withdrawn from the mortgage ends up costing more than it would with a regular car loan. That's because money borrowed against the mortgage is paid off over a much longer period.

The $10,000 car would cost more than $18,000 at the current floating interest rate of 5.6 per cent if the money was paid off over the 25-year life of the mortgage.

With interest rates set to rise, it's likely to cost a whole lot more than double the original purchase price.

It's even debatable whether extending the mortgage to put a new bathroom, kitchen or extension on the house is good debt.

That expenditure usually doesn't pay for itself in terms of increased capital value of the house, which means it's not an investment but disguised consumer spending.

Or, as the Retirement Commissioner puts it, it is a value-loser, not a value-builder.

Even worse than extending a regular principal and interest mortgage to buy consumer goods is a revolving credit mortgage.

Revolving credit can be a complete disaster for people who use it for consumer spending. It doesn't even require forms to be filled in to get your hands on big chunks of erstwhile savings from your mortgage.

A modest $50,000 house extension will cost more than $92,000 over 25 years at a 5.6 per cent floating rate, which isn't likely to remain as low.

I've not compared these to average historical interest rates because many believe they'll never again climb to the dizzy heights of the 1980s.

Even on a rental property it is hard to justify such spending on building works, kitchens and bathrooms, if it doesn't increase the capital value or the yield sufficiently to pay its own way.

Getting out of the debt delusion is a whole other story. In some ways that's the easy bit.

As in Willamene's case, it's a matter of understanding and accepting that there's something wrong with your existing attitude to debt.

Willamene lives on a call-centre worker salary, which is hardly a king's ransom, and is a good example to middle-income debtors who reckon they can't make ends meet.

Help is out there in the form of websites such as and budget counsellors, who are free and can be found in Auckland and smaller towns. Check out's 60-Second Guide to Getting out of Debt at, and join an online community of people who are dedicated to getting out of debt, such as those on the and discussion boards at

Finally, there is good news.

According to NZIER analysts, we used to spend $1.10 for every dollar we earned two years ago. That's now 98c, which is a stunning improvement. NZIER principal economist Shamubeel Eaqub said he never expected to see such a large turnaround in our spending patterns.