Revolving credit might feel like financial freedom - but for many New Zealanders, it’s a trap that keeps them in debt far longer than they expect. In this article, we break down what revolving credit is, when it works well, and why it can ruin your financial progress if you’re not careful.
What is Revolving Credit?
At its core, a revolving credit is like a large overdraft secured against your home. Instead of paying unsecured interest rates of 12–13%, you pay a rate closer to your home loan — typically just above the floating rate. The limit is static for some products (e.g., $10,000 for the life of the loan), while others reduce over time depending on the bank.
Revolving credit is popular with certain groups:
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Owner-occupied homes: $6.1 billion in revolving credits.
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Investment properties: $1.33 billion.
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Business sector: $40.8 billion.
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Agriculture sector: $18.1 billion.
Some banks, such as ANZ and TSB, offer particularly good revolving credit facilities, but eligibility generally requires at least 20% equity.
The Upside: When Revolving Credit Works
Revolving credit can be a powerful tool for people with irregular income — think self-employed contractors, real estate agents, or anyone who invoices and gets paid later. It allows you to park lump sums (such as commissions or seasonal income) into your loan account, reducing interest until you need to draw on the funds.
It can also work well for:
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Saving for provisional tax or GST while keeping those funds working against your home loan.
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Using a credit card for expenses while leaving your salary in the revolving account, then paying the card in full each month to reduce average loan balance and interest.
However, these strategies demand strict budgeting discipline. Without it, the facility can quickly become a debt trap.
The Downside: Why Revolving Credit Will Ruin Your Life
For most people, revolving credit doesn’t speed up debt repayment — it delays it. The flexibility that makes it appealing also makes it dangerous. Common pitfalls include:
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Never reducing the balance: Many borrowers owe the same amount years later.
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Treating it like free money: Paying it down, then redrawing for holidays or big purchases.
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Paying more interest over time: Because balances often stay high.
Even with good intentions, most people fail to stick to their repayment plan. If you struggled to save your house deposit without the help of KiwiSaver’s lock-in, a revolving credit is unlikely to work in your favour.
A standard table loan with higher set repayments is often a far better choice for paying off debt faster.
Key Takeaways
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Revolving credit is essentially a large overdraft secured against your home.
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It can benefit disciplined borrowers with irregular income or tax savings needs.
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Most people fail to reduce the balance over time, often spending it on non-essential items.
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The flexibility can lead to higher interest costs and slower debt repayment.
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A table loan with increased repayments is usually a better strategy for paying off debt quickly.
Next steps:
If your revolving credit is holding you back, speak to Lighthouse mortgages. Our advisers can help you restructure or refinance your mortgage for a repayment plan that works.
If you’d like to learn more, check out these other episodes below.
For a no obligation discussion to see how we can help you on the path to wealth, please contact us.
Disclaimer:
The information in this article is general information only, is provided free of charge and does not constitute professional advice. We try to keep the information up to date. However, to the fullest extent permitted by law, we disclaim all warranties, express or implied, in relation to this article – including (without limitation) warranties as to accuracy, completeness and fitness for any particular purpose. Please seek independent advice before acting on any information in this article.
