The dream of retiring stress-free is becoming harder to achieve as more and more Canadians are carrying debt into retirement. As seniors leave their jobs behind, their debts are remaining in the form of mortgages, credit card debt and lines of credit. And while these debts may have been manageable prior to retirement, living on a fixed income can make paying down debt much more difficult.
In recognition of this growing concern, the 2021 federal budget proposed adjustments for seniors eligible for Old Age Security (OAS) aged 75 years and older. First, is the promise of a one-time payment of $500 in August of 2021. Second, is a permanent increase in OAS benefits of 10% as of July 2022.
While this is good news for seniors, these adjustments only affect Canadians who collect OAS and are 75 and older. Increasing debt amongst seniors affects Canadians aged 60 and older. Including many seniors who are financially supporting spouses, adult children and grandchildren in addition to their own living expenses. Government benefits may help with some temporary relief but are not enough to resolve the debt.
Tackling Debt as a Senior
If you or someone you love is a senior struggling to meet their debt payments, there are ways to regain control of your finances and prevent unnecessary debt throughout your retirement. Here are some of our top tips for seniors looking to tackle their debt:
1. Create or review your budget.
Everyone should have a household budget, however, utilizing a budget is especially important for people who live on a fixed income. Your budget doesn’t need to be anything complex. A spreadsheet, a notebook or even jars or envelopes with predetermined spending amounts will do.
The budget simply needs to identify your total monthly income, your fixed expenses such as rent, mortgage, car payments, etc., your variable expenses such as clothing, hygiene products, home maintenance, etc., and the amount in which you have leftover for savings and discretionary spending after all expenses are subtracted from your income.
Once the budgeting process is complete, you can then address any areas where you could potentially reduce your spending such as subscriptions, take out, entertainment, etc. Reducing your discretionary spending by $20 a month can add an extra $240 a year in your pocket that can go towards your debt payments.
2. Build a plan for paying down your debt.
It’s one thing to say you are going to pay down your debt, but you are more likely to accomplish something when you establish a plan to do so.
When it comes to strategizing how to pay down your debt, ironically the most expensive debts may be the ones you pay last. Generally, when it comes to paying down debt, it is recommended to look at the interest rates rather than focusing on the actual amount owing.
Take some time to review the interest rates on each of your debts. Calculate how long it will take to pay off that debt if you were only paying the minimum payments and how much you would be paying in interest. If you need help figuring out your interest rates or calculating these payments, financial professionals such as Licensed Insolvency Trustees at Grant Thornton Limited will be more than happy to assist you.
Once you have made all the necessary calculations, list your debt in order from highest interest rate to lowest. By tackling the debts with the highest interest rates first (i.e. payday loans and credit cards), you will spend less on interest payments, resulting in more money to pay down your other debt.
3. Talk to your bank about lower interest rates
Remember that saying “it doesn’t hurt to ask’”? Well, it also applies when it comes to talking with your bank about interest rates and fees.
Have an honest conversation with your bank about your current financial situation and what you’re able to afford given your budget. They may be willing to work with you to reduce interest rates so that more of your payment goes towards payment of the principal. If you have multiple debts with your pay, they may also give you the option to consolidate your debt into one monthly payment.
4. Look into formal debt relief options
When you’ve tried all other options and are still struggling to make your debt payments, it may be a good idea to explore a formal debt relief option such as debt consolidation through a consumer proposal, or bankruptcy. These options may seem intimidating at first, however, they are regulated by the federal government and are focused on helping people back on their feet financially.
You can explore further resources on bankruptcies and consumer proposals throughout our website, but for a personalized conversation with a debt professional, we recommend booking a free confidential consultation.
After years of hard work, we all wish to enjoy the retirement we deserve. Whether you’ve carried debt into your golden years or have accrued debt while living on a fixed income, there are steps you can take to relieve your overwhelming debt as a senior. To learn more about each of these options or to get started on your debt-free retirement, reach out to a member of our team. We’ve helped many seniors in debt get a financial fresh start for their retirement.