Retirement is supposed to be a time to kick back and enjoy some of life’s simple pleasures after decades of hard work. Yet, for many Canadian retirees and soon-to-be retirees, the care-free credit habits of their working years continue to haunt them into retirement.
According to a 2012 survey, commissioned by CIBC, a shocking 59% of Canadians are retiring with debt and about two thirds of Canadians do not have the savings necessary to retire. What is most shocking about this survey is that the majority of the debt Canadians are carrying into retirement comes in the form of credit cards and lines of credit – Revolving debt that carries compound interest.
While much of this debt may have been manageable before retirement, for seniors on a fixed income these debts have the potential to get bigger over time.
The good news is that whether you are retired or on your way to retirement, you can take action now to reduce your debt before it spirals out of control.
Eliminating Credit Card Debt
If you are carrying unsecure credit card debt, make it a priority to pay it off as soon as possible. Because unsecure credit card debts have a revolving payment schedule, you are required to pay more as your balances increased. Paying these debts off on a fixed income can easily get you into trouble when the payments start to exceed what you can pay each month. These tips will help you address your credit card debt today:
- Assess your budget to cut out anything that isn’t absolutely necessary.
- Apply your additional cash flow to making extra payments on one credit card debt at a time.
- Negotiate better interest rates. Taking off a percentage point or two is the quickest was to save big on credit card bills.
- If you have five or six credit cards now, keep one or two with low interest rates.
- Never carry a credit card debt burden of more than 10 per cent of your monthly income.
Saving for Retirement
While repaying debt before retirement remains an integral component to maximizing cash flow, retiring with little savings can also create financial difficulties and anxiety in your later years.
Although you may need to spend time focusing on reducing your debts, don’t let your retirement plans languish for too long. Creating a savings strategy for retirement needs to be a key component to your regular budget. Most experts agree that the average Canadian will need about 75% of their current income for each year of retirement. By carefully balancing borrowing and retirement savings activities, most retirees will be able to kick back and enjoy life’s simple pleasures when the time comes to stop working.