Zip zap, it's a path to penury

New Zealanders think plastic is fantastic and are big on borrowing. So big that we owe $1000 on credit cards alone for every man, woman and child in this country, says cardwatch.co.nz.

Our total debt including mortgages, hire purchase, personal loans and other credit has leapt to $114 billion compared with $25 billion in 1990. Removing mortgages from the equation, we still owe more than $10 billion to banks and other financial institutions. In short, there's a lot of Kiwis with debt problems.

Many start out with student debts - which amount on average to $14,242. Once out of university, many people fall in love with spending and it's a slippery slope to debt disaster. That's the easy bit.

Ditching debt is where it gets difficult and, like dieting, it's easy to think that just one more chocolate, or a new pair of shoes are a flash in the pan compared with thousands of dollars of debt.

It's easy to work out if you're overweight. But identifying that your debt is out of control is the biggest step, says NZ Federation of Family Budgeting Services executive officer Raewyn Nielsen.

Telltale signs include failing to open bills when they arrive, thinking you're going to win the lottery and buying groceries and essentials on your credit card, or giving up hope of going on holiday without doing it on credit.

Once you realise you have a problem, the first thing you need to do, says Nielsen, is to banish the psychological barriers that stop us acknowledging debt problems. They include:

* The gamblers' mentality that you're going to win the lottery or get a better job.

* The instinctive need to put off telling those you love your spending pattern is going to change.

* Thinking "she'll be right" when your personal debt mountain is growing.

* Believing that budgets mean doing without.

* Burying your head in the sand because you think tackling debt is too difficult to contemplate.

Getting out of debt requires positive action. The first step is to keep a spending diary for a month. Write down every last chocolate bar, coffee and DVD you buy. Then take a hard look to see where you can spend less.

It's easy to ignore spending when it's just $3 or $4 a day. But a cheap and cheerful $12 bottle of wine, three times a week adds up to $1872 a year and, if like me, you go out for coffee most days, then that's another $1092 a year.

Add in CDs, TV channels, lunches out, takeaways and cigarettes and you'll soon see room for savings.

The next step is to set up a budget or spending plan. You'll need to include annual expenses such as car tax, insurance, school uniforms, new suits and contingency spending such as new tyres for the car, not just your week-to-week spending.

If you understand spreadsheets download a personal budget template from Microsoft's Office website.

If you still can't get ends to meet, or want to get debt free faster, then you're going to need to increase your income. The way to do that is get a part-time job or business, work overtime, get a pay rise, or take in boarders or foreign students.

Working longer cuts the time available for shopping.

It's a hard thing to stomach your mates buying the latest wide-screen TV, the neighbour's kids having every toy known to man or just about everyone you know jetting off to Fiji for a tan top-up.

But if your aim is to learn to live within your means, then you're going to have to confront your spending demons.

If your spending diary isn't enough to halt your credit card in its tracks, then ask yourself every time you go to buy something: "Do I really need it?" Chances are if you wait a week or two for small items and a month or so for large ones, that you'll find you can live without them.

If you're up to your eyeballs in debt, you're not alone or unique. Free budget advisory services abound, so get help. Your local centre will be listed under Budget Advice Services in the White Pages of the telephone directory.

Speaking to a trained budget adviser can help clarify the mind. Or, if you can't confront someone in person, you might find it helpful to join a self-help group on the internet such as the Motley Fool's dealing with debt board.

Anyone serious about organising their finances might consider buying a copy of Microsoft Money 2005 or other personal finance software that enables them to download their bank statements, categorise and analyse spending, keep track of bills, budget, and forecast for the future.

Educating yourself about the finer points of money management is an excellent step on the straight and narrow to financial security. Buy yourself a book such as Scott Pape's The Barefoot Investor or Martin Hawes' Financial Secrets. Even better, get a copy out of your local library for free.

What to avoid: Don't whatever you do fall for financial diet busters if you're looking to get out of debt. Debt consolidation or replacing your existing debts with a new loan is one of the riskier strategies when it comes to dealing with debt. You're borrowing from Peter to pay Paul, which only makes sense if the total interest charges you're paying go down. Debt consolidation loans are often packed with hidden fees that increase your overall debt, or they simply spread your debt over a longer period.

Likewise, using your credit card to pay off other debts is the proverbial slippery slope. Unless you're an organisational whiz and pay off your credit card each month, then using it to make repayments on your HP or other loans is a sure-fire way to get sucked into the credit quicksand.

Money saving tips

Financial planner and author Lisa Dudson says we often lose sight of the simple ways to save money. Her top tips are:

* Beg or borrow from friends and family rather than buy.

* Never pay retail: if you must buy consumer goods and can't get them used, then bargain hard.

* Buy gifts on sale and keep an eye out all-year round for them.

* Pay cash because it hurts and you'll spend less as a result.

* Try in-house or plain-pack products. They cost less.

* Buy on special and use coupons. But don't over buy just because you spot a bargain.

* Always use a written shopping list and plan meals so that you don't have to pay over the odds when you find yourself short of an ingredient at the last minute.

* Hold a garage sale and turn your junk into cash.

* Quit smoking. You'll save money on insurance and health care as well as the cost of the fags.

* Save electricity by turning off unused appliances.

* Take a packed lunch to work every day.

* Cut up your credit cards and say "no" to hire purchase.