Solutions To A Debt-free Retirement

Nobody likes to talk about debt. The sad truth is that almost everyone has a little bit of debt. Mortgage debt, car payments, credit card debt, and home loans are all common forms of relatively acceptable debt. This debt can grow over time and as interest accumulates, the debt can get out of hand. When it comes to planning for retirement, you want to eliminate as much of that debt as possible prior to retiring to know exactly how much you’ll have each month on a more defined, monthly retirement income.

It is imperative to have a healthy portfolio before you retire. However, it may not look as healthy as it should due to the falling economy and downsizing. Due to COVID-19, many individuals have had to take early retirement or make concessions with their retirement plans. There are many tips you can use to minimize and even eliminate debt altogether before you retire.

It’s really important to talk to a Certified Financial Planner, such as Bruce Youngblud at Pension Solutions Canada, who can help you by analysing your sources of income, pension, assets and debt, to come up with a comprehensive retirement plan.

Here are four steps to help you tackle debt before retirement:

1. Be Honest with Yourself

As you’re exploring how to pay off your debt, the first step is to be honest about how much you owe. Sit down and open up all of your statements. Add up how much you have in total debt right now.

2. Choose One Account To Focus On

The next step is to choose one account to pay off first. Some people like to tackle the smallest balance first. Other people like to focus on the largest balance first. Or you might look at the card with the highest interest rate.

Decide where to focus your attention and which account you’re going to pay off first, while keeping in mind that you’re going to continue paying the minimum balance on your other cards and debt. The one you focus on is going to get more attention because you’re going to pay more than the minimum balance.

3. Negotiate a Lower Interest Rate

The next step is to call that credit card company and negotiate a lower annual percentage rate or APR. Don’t be afraid to do this. Even if you only knock off one or two percentage points, you’re saving money each month. This is money that you can use to pay off your card more quickly.

4. Know Where the Money Is Coming From

Now take a look at your budget and decide where the extra money is going to come from. It shouldn’t come out of your emergency fund (we talk about that in this post here). You may need to reduce some of your other expenses to find money for your debt payoff plan. You might reduce your cell phone data plan, carpool to save on gas, or start making your own coffee at home.

Look at your expenses and see where you can pull a little bit of money to pay towards your debt. Once that credit card is paid off, start the process over again.

5. Consolidate Your Debt Before Retirement

By consolidating debt, you now have the opportunity for one low monthly payment and one interest rate. This will open up the opportunity for you to pay off your credit card debt faster. By consolidating debt, you eliminate multiple payments and reduce the accumulation of multiple interest rates.

Make sure that you shop around before consolidating credit card debt from one card to another. The terms and agreements are almost always in fine print and you need to know what the penalties, fees, surcharges, and time frame are before signing on the dotted line.

6. Eliminate Future Debt

The only sure-fire way to eliminate future debt is to live within your means. If you purchase something and use the thought process of figuring out how to pay for it later, you are already automatically in the danger zone.

Seek the expertise of a Certified Financial Planner. Don’t leave your finances to chance. By learning how to create and stick to a budget you can get yourself back on track to retiring free of future debt.

For help with debt, we recommend Dave Ramsey’s book ‘The Total Money Makeover‘ available on Amazon here.

As with everything else, an informed consumer is a wise consumer. When it comes to matters of your money, seeking out help is important. Best of all, the services of Pension Solutions Canada are no cost to you.

Consult with a Certified Financial Planner by calling us at 1-888-554-6661.


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