Too much debt?

Ben and Rata earn a combined income of $120,000. They're in their early 30s and without any retirement savings plans. They have a big mortgage but they're managing their repayments okay. It’s the credit cards they have difficulty with – between them they have around $10,000 in credit card debt at 19.95% and they hardly ever manage to pay off more than the minimum.

Ben starts a new job with a higher salary and is opted into KiwiSaver. However he is a bit concerned that the 4% of his salary going into KiwiSaver could be better used paying off that high interest credit card debt. He'd always thought it was better to pay off debt before starting to save seriously. Should he opt out?

Rata does the sums on Sorted's KiwiSaver Decision Guide. She finds that if they each join KiwiSaver while continuing to pay off their credit card debt they would be better off in the long-run. She decides to opt in to KiwiSaver now rather than wait to get a new job and be automatically opted in.

Ben, on the other hand, just can’t live with the idea of continuing to have that high interest debt. He decides to opt out of KiwiSaver, and put the 4% of his new salary into extra repayments on their credit card debt – once those are cleared he'll take a fresh look at KiwiSaver and will probably join.

Rata and Ben could also have chosen to divert up to half their KiwiSaver contributions towards repaying their mortgage. They could then have used the money they no longer needed for mortgage payments to repay their high-interest debt faster.

Or they could have added $10,000 to their mortgage and used the money to pay off their credit card debt. Then they could have used mortgage diversion to attack the mortgage.