Retiring With Debt in NZ: Credit Cards, Car Loans and Buy-Now-Pay-Later at 65

Carrying credit cards, a car loan or buy-now-pay-later into retirement? How consumer debt hits a fixed NZ Super income, whether to clear it before 65, and a plain plan for getting there.

A mortgage gets most of the attention when people talk about retiring debt-free. But credit cards, car loans and buy-now-pay-later balances cause their own kind of trouble, because they carry high interest and they have to be serviced out of a fixed income that does not grow when you work harder. Once you are living on NZ Super and your savings, every repayment competes directly with the grocery and power bills.

TL;DR: Consumer debt and a fixed retirement income are a poor fit. Credit cards advertise around 18.19% in New Zealand, with the effective rate paid on balances sitting close to 20% ¹. On a single person's NZ Super of about $538.42 a week after tax ², high-interest repayments eat a large slice of the budget. Clearing this kind of debt before 65 is often worth considering, though not always by emptying every dollar of savings. Personalised advice helps you weigh it up.

What does carrying consumer debt into retirement actually do to your income?

While you are working, debt repayments come out of a wage you can sometimes lift by taking on more hours or a pay rise. In retirement, that lever is gone. NZ Super is fixed, indexed to wage movements once a year but otherwise flat, and most people are drawing down savings rather than adding to them.

That changes the maths in two ways. First, the repayment is a larger share of a smaller income. A single person living alone receives about $538.42 a week after tax on NZ Super (tax code M), roughly $27,998 a year ². For a couple where both qualify, it is about $414.17 each per week ³. There is not much spare room in those figures once rent or rates, power, food and insurance are paid.

Second, consumer debt is expensive. The average advertised credit-card interest rate in New Zealand is around 18.19%, and the effective rate actually paid on revolving balances sits close to 20% ¹. At that rate, a balance that is only minimally repaid can take years to clear and cost more in interest than the original purchase. On a fixed income, that interest is money permanently leaving a budget that has no way to refill it.

The wider picture matters here. Retirement Commission research with more than 1,450 people aged 65+ found that 39% rely on NZ Super as their only income, with no other savings, investments or KiwiSaver to fall back on ⁵. For that group in particular, servicing high-interest debt out of Super alone leaves very little margin.

Should you clear debt before you retire, even if it empties your savings?

For high-interest consumer debt, clearing it before you stop working is often worth serious consideration. The reason is simple arithmetic: paying off a balance charging close to 20% is a guaranteed saving of that interest rate, which is far more than cash in a savings account or a term deposit is likely to earn after tax. In that narrow sense, clearing the debt usually "returns" more than holding the money.

The harder question is whether to empty your savings to do it. Going into retirement with no cash buffer carries its own risk. If the car needs replacing, a health cost lands, or the roof leaks, someone with no accessible savings may end up back on a credit card or a high-cost loan, which is the exact problem they were trying to escape. Clearing one debt only to create another is no progress at all.

So it is rarely an all-or-nothing decision. Many people in this situation look to clear the most expensive debt first while keeping a modest emergency buffer intact. What "modest" means depends on your circumstances, your other income and how secure your housing costs are. This is the kind of trade-off where personalised advice earns its keep, because the right balance between clearing debt and holding a buffer is genuinely individual.

Is it ever sensible to use a KiwiSaver lump sum to clear high-interest debt?

Once you reach the age of eligibility for NZ Super, you can usually withdraw from KiwiSaver, and some people consider using part of that lump sum to wipe out consumer debt. It can make sense, but it is worth thinking through carefully rather than treating KiwiSaver as a chequebook.

The case for it is the interest rate. If a credit-card balance is costing close to 20% a year ¹, clearing it removes a cost that almost no investment reliably beats after fees and tax. Money that would have gone on interest can then go towards living costs instead.

The case for caution is that KiwiSaver is also the pot meant to last the rest of your life. Drawing a large lump sum early reduces what is left to generate income, and the balance you withdraw stops being invested for growth. For someone with a long retirement ahead, that matters. It is also worth remembering that KiwiSaver and managed funds are investments whose value can rise and fall; they are not a guaranteed savings account, and the right amount to keep invested depends on your time horizon and risk tolerance.

In practice, using a measured portion of a KiwiSaver lump sum to clear genuinely high-interest debt, while leaving the bulk invested to provide income, is a more balanced approach than draining the account or ignoring the debt. How that splits for you is exactly what an adviser works through. Our guide to KiwiSaver drawdown options in retirement covers the mechanics of withdrawing after 65.

How does debt change your safe drawdown rate?

A "safe" drawdown rate is the amount you can take from your savings each year with a reasonable chance of not running out over a long retirement. Debt repayments quietly raise the income you need, which means you have to draw more, faster.

Here is the link. If you need an extra few thousand dollars a year to service consumer debt, that money has to come from somewhere: a larger withdrawal from KiwiSaver and savings, or a tighter budget elsewhere. Drawing more each year increases the chance your savings are exhausted sooner, especially if a market downturn hits early in retirement. Debt does not just cost interest; it forces a higher and less sustainable drawdown.

Clearing the debt before you retire works the other way. With no high-interest repayments to fund, the income you need from savings falls, and a lower drawdown is easier to sustain. The figure below illustrates the underlying point: money tied up servicing 20% debt is money not available to invest or to draw down sustainably.

Figure (described): a line chart titled "What 20% debt costs you on a fixed retirement income". One line shows the years it takes to clear a fixed consumer-debt balance while making set repayments at around 20% interest; a second line shows the same repayment amount instead invested over the same period, modelled against a fixed NZ Super income. The gap between the two lines widens over time, illustrating the compounding cost of carrying high-interest debt rather than clearing it. Modelled from RBNZ consumer interest rates ¹ and Retirement Commission income data ²⁵. This is an illustration based on stated assumptions, not a prediction; actual results will differ.

Our guide to the safe withdrawal rate in retirement goes deeper on how much you can sustainably draw, and why carrying extra fixed costs makes that harder.

What's the order to pay debts off before 65?

When you are clearing several debts on a fixed timeline, the order usually matters more than the amount. A common, sensible approach is to clear the most expensive debt first, because that is where interest is doing the most damage.

The table below ranks the typical consumer debts by interest cost. It is a general guide, not a recommendation for your situation, and the figures will differ by lender and product.

The general principle is to clear the highest-rate debt first, then roll what you were paying on it onto the next one. Buy-now-pay-later sits awkwardly in this list: it is often interest-free if you pay on time, so it is not always the priority on cost alone, but several overlapping instalments can quietly strain a fixed budget and are easy to lose track of.

This is a summary of a common approach, not personalised advice. The right order for you depends on your interest rates, balances, fixed-term penalties and cash flow.

Can you still retire if you can't clear all your debt?

Yes. Not everyone can wipe every debt before 65, and retiring with some debt is not a failure. The aim is to make the debt manageable on a fixed income, not necessarily to reach zero by a particular birthday.

If clearing everything is not realistic, the focus usually shifts to three things: reducing the interest rate where possible (for example, consolidating high-rate balances into a lower-rate facility, if the numbers genuinely stack up), shrinking the highest-cost balances first, and building the repayments into a realistic budget that NZ Super and your savings can actually support.

It is worth being honest about how tight things can be. Retirement Commission research found that 36% of working over-65s keep working primarily because of financial pressure, and 37% said their financial situation had worsened over the previous two years ⁸. Among older mortgage-holders, 43% said they had no savings, investments or KiwiSaver to fall back on ⁶. Carrying debt into retirement is common; what helps is having a clear plan for servicing it rather than hoping it sorts itself out.

For some people, decisions about housing are part of the answer too, since rent or a remaining mortgage is usually the largest fixed cost. Our guide on retiring with a mortgage or renting looks at that side of the picture.

How do car loans and BNPL quietly wreck a fixed-income budget?

Credit-card interest is visible and people tend to worry about it. Car loans and buy-now-pay-later can do quieter damage, because the cost shows up as committed monthly payments rather than an obvious interest rate.

A car loan locks in a fixed repayment for a set term. On a wage that might be comfortable; on NZ Super it can be a large, non-negotiable slice of a fixed income for years. Replacing a car on finance in your early sixties can mean carrying that repayment well into retirement, on top of running costs.

Buy-now-pay-later is different again. Each individual purchase feels small and is often interest-free, which is precisely why balances stack up. Several overlapping instalment plans can add to a meaningful committed amount each fortnight, and missed payments attract late fees. On a fixed income with little spare room, a handful of BNPL plans running at once can crowd out essentials before you have really noticed.

The common thread is that both convert a one-off purchase into an ongoing fixed cost. On a wage you might absorb that; on NZ Super, every new committed payment reduces what is left for the basics. Going into retirement with as few of these locked-in commitments as possible gives your budget far more breathing room.

What's a realistic pre-retirement debt-clearing plan?

A workable plan does not need to be complicated. The point is to know what you owe, in what order to tackle it, and what to protect along the way. A common shape looks like this:

1. List every debt with its balance, interest rate and minimum payment. Include credit cards, personal and car loans, overdrafts, store cards and every BNPL plan. You cannot prioritise what you have not written down.

2. Rank by interest rate, highest first, and target the most expensive debt while keeping minimums current on the rest.

3. Decide on a buffer to protect. Clearing debt to zero only to have no emergency cash can backfire. Many people keep a modest buffer rather than emptying every account.

4. Use windfalls and the last working years deliberately. A bonus, an inheritance, the final few years of full-time income, or a measured KiwiSaver lump sum after 65 can each accelerate the plan.

5. Build the leftover repayments into your retirement budget. Once a debt is gone, redirect what you were paying on it to the next one, or to savings.

6. Review the plan as things change. Interest rates, health and spending all shift; the plan should keep up.

None of this is one-size-fits-all. The balance between clearing debt, keeping a buffer and leaving KiwiSaver invested is genuinely individual, and it is the part where talking it through with an adviser tends to help most.

It is also worth a reality check on what NZ Super alone provides. Sorted and Retirement Commission guidance shows that NZ Super on its own falls below most households' "choices" (comfortable) lifestyle level, and that even a no-frills two-person provincial retirement still needed around $75,000 in savings on top of Super ⁹. Debt repayments come out of that same gap, which is why clearing high-interest debt before 65 frees up so much room.

Frequently asked questions

Should I pay off my credit card before I retire in NZ? For most people, clearing high-interest credit-card debt before retiring is worth serious consideration, because the interest, around 18.19% advertised with an effective rate near 20% ¹, is a guaranteed cost that almost no savings or investment reliably beats after tax. The main caution is not to empty every dollar of savings to do it, since a small emergency buffer helps you avoid going straight back into debt. The right balance depends on your circumstances, and personalised advice helps you weigh it up.

Can I use my KiwiSaver to pay off debt at 65? Once you reach the age of eligibility you can usually withdraw from KiwiSaver, and some people use part of that lump sum to clear high-interest debt. It can make sense for genuinely expensive debt, but KiwiSaver is also the pot meant to provide income for the rest of your life, so drawing a large amount early reduces what is left invested. KiwiSaver is an investment whose value can rise and fall; how much to withdraw is an individual decision. See our KiwiSaver drawdown options guide.

How much does carrying debt change how much I can spend in retirement? Debt repayments raise the income you need, which usually means drawing more from your savings each year. A higher drawdown increases the chance of running out sooner, especially if markets fall early in retirement. Clearing high-interest debt before 65 lowers the income you need and makes a sustainable drawdown easier. Our safe withdrawal rate guide explains this in more detail.

Is it bad to retire with some debt? Not necessarily. Retiring with some debt is common, and the goal is for it to be manageable on a fixed income rather than zero by a set birthday. Retirement Commission research found many over-65s carry financial pressure into retirement, with 36% of working over-65s working mainly for financial reasons ⁸. The priorities are usually lowering the interest rate where possible, clearing the most expensive balances first, and building realistic repayments into your budget.

Which debt should I pay off first before retiring? A common approach is to clear the highest-interest debt first, which is usually credit cards (advertised around 18.19%, effective rate near 20%) ¹, then personal and car loans, then overdrafts. Buy-now-pay-later is often interest-free if paid on time, so it is not always the cost priority, but several overlapping plans can strain a fixed budget and are easy to lose track of. The right order for you depends on your rates, balances and cash flow.

This article is general information only and is not personalised financial advice. It does not take into account your particular financial situation, goals or needs. Before acting, consider whether it's right for you and seek advice tailored to your circumstances. Craig Smith Business Services Ltd (FSP712931), trading as Smiths Financial, holds a Class 2 licence issued by the Financial Markets Authority and is a member of the Financial Dispute Resolution Service (FDRS). Smiths Financial does not provide advice on mortgages, debt consolidation lending or budgeting services; for those, please consult an appropriately authorised professional. Figures are correct as at 18 April 2025; NZ Super, KiwiSaver and interest rates can change. Written by Henry Smith, Financial Adviser; reviewed by Craig Smith, Principal Adviser. Last reviewed 18 April 2025.