Many Baby Boomers getting closer to retirement age are still loaded down by debt

According to Statistics Canada, many Baby Boomers getting closer to retirement age are still loaded down by debt. This is an issue because their income will be greatly reduced during retirement and paying down debt will be increasingly more difficult. The best idea is to clear the debt first. Investment Advisors from Desjardins Financial Security suggest that while you’re still working it’s important to take a serious look at your financial situation and start making the necessary adjustments now.

 It’s never too late to set up good financial habits

 According to Statistics Canada’s “Retiring with debt” publication, one in three retirees have some form of debt, and that’s equally true for couples and single people. The debt can be in the form of loans, credit cards and lines of credit. The good news is that these retirees owe less than Canadian workers aged 55 and up. Their median debt is $19,000, as compared to $40,000 for workers. The ideal plan is to develop good financial habits during your working life to ensure that you have plenty of savings and few liabilities at retirement.

 Understand your liabilities and pay them off

 There are two types of debt: one increases your assets like a mortgage and the other reduces your assets like credit cards. Credit in and of itself isn’t the problem, so long as it’s managed well. To know exactly where you stand make a list of all your liabilities:

 • Bank and store credit cards tend to have the highest interest rates, so you should focus on paying this off first

 • Lines of credit

 • Car loan

 • Investment loans

 • Student loans

 Paying off the smallest balances first, regardless of the interest rate, will also give you a sense of accomplishment and provide an initial success story to reinforce you’re good financial habits.  Once you’ve paid off the small balances or the debt with the highest interest rate, move onto the next loan facility.  Refinancing your mortgage to pay off debt is a great way to tackle the problem quickly, improve cash flow and your credit score.  Increasing your mortgage payments by the amount previously paid on your liabilities will pay the loans off relatively quicker and at a lesser interest rate.  Finally, consider trying paying off your mortgage next. You can reduce the amortization period for your mortgage by increasing your payment amounts, by making a prepayment, or increasing the payment frequency (e.g. changing to an “accelerated” bi-weekly or weekly payment rather than monthly).

 As an added protection, consider credit insurance and term life insurance. In case of illness, disability, or death, these types of insurance will protect your family by covering off your debts and securing your assets.  To discuss how our office can help you, please call Garth at (403) 688-9988 anytime.

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