Dealing With Debt

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Seniors & Debt – A Growing Problem That We Can Help Fix

by Tim St. Vincent

You are a Senior, or about to be? You are getting ready to head down the golden path of retirement? Nothing ahead of you but relaxation, grandkids, and maybe a new hobby or two. Oh, and debt. Yes, debt.

I know. You don’t really think about debt and retirement as going together, but they do. Maybe that’s the problem; because we don’t think of them as going together, we forget about the debt part of retirement. Then when you retire, there it is. Debt. Like a great big puppy dog it shows up on your doorstep wagging its tail, and you think ‘How did that get there? I don’t know what to do! How do I pay off my debt?’

Debt and retirement shouldn’t come as a surprise. Most of us were never taught how to handle credit properly. To some extent we all know that the second we use credit it becomes debt; but we don’t really fully understand. Because we don’t’ fully understand credit when we first start using it, by the time we retire we have a lifetime of mistakes and credit card debt that follow us into retirement and this challenge only increases as we age.

Seniors are at Increasing Risk of Retiring with Debt

Equifax, one of Canada’s two major credit bureaus recently put out a report on consumer debt. According to the report we have over $1.71 trillion of debt and the post retirement to pre-retirement group is at the greatest risk. The 65+ age group has the largest year-over-year percentage increase in debt; the 56-65 age group (early retirees) come in with the second largest balance of debt owing while the 46-55 age group (on the brink of retirement) carry the largest debt balance at $32,654. This information matches with the information that the Credit Counselling Society tracks; the 55+ age group is the fastest growing group seeking our help to manage credit card and other debt, the average debt carried by our clients is $30,752. Debt and Retirement, hand in hand. Who knew?

So why is this happening? There are many thoughts on that. Credit card debt really started its rise in the mid to late 60’s. We weren’t ever really educated on it, it was just there. As we grew older, we came to rely on it and use it more and more, still without thoroughly understanding it. When it came time for us to retire, like a little puppy dog, it came trailing after, debt, happy to follow us into the golden years.

There can be many reasons why debt is such an issue among the 55+ age group. When the stock market corrected back in 2008/09 many people cashed out their investments, locking in their losses. Now, almost 10 years later people are depending on those funds to retire on but they are no longer there. Then there are the boomerang kids. They are returning not only to their parents, but to their grandparents too! Some studies have shown that many retirees delayed retirement by 5 years or more in order to get their debt under better control; the same study shows that 25% of parents are supporting their adult children to the extent of $500 or more a month. 33% of Canadians work past the age of 66 because they need to. Almost 50% of retirees worry about their debt.

Debt can easily change from that cute puppy dog that you took in because it brought joy to the dog that you can never quite house train, the one that leaves a mess all over the place. So then how can we house train and clean up after this puppy called debt?

As is often the case, we have to go back to basics. You need a solid budget and you need to track your expenses to see how closely they match your budget. At the Credit Counselling Society, we have a basic personal expense tracker that you can download. We also have an excellent daily expense tracker in Excel that can be downloaded to help you track your expenses. Tracking your expenses is an essential part of budgeting and of getting out of debt. If you think you have a budget, but you don’t track your expenses, then you don’t have a budget – you have a wish list. Tracking gives truth to your budget. Your budget says ‘this is how I hope I will spend my money’. Tracking your expenses using a manual expense tracker or tracking expense spreadsheet gives truth to your budget, it shows how you are really spending your money.

With respect to your retirement budget, plan on needing about 70% of your pre-retirement income to meet your retirement expenses. Pay off your debt, and don’t bring any more debt puppies into the house, no matter how cute they may look! If you can, retire your debt one year before you retire your work! If you haven’t retired yet, do a pre-retirement and a post-retirement budget to understand how much you will really need.

Be Careful About Replacing One Debt with Another

Many people in, or close to retirement bring a substantial amount of debt with them, often a large portion of that debt is credit card debt. To get out of debt quickly many will turn to a consolidation loan or a home equity line of credit (HELOC), but don’t fool yourself, this is just replacing one kind of debt with another type! Credit in and of itself is neither good nor bad, how you use it will determine if it is a tool or a trap. Many consolidation loans only require you to pay the interest, not the principle (the amount borrowed), this can make the loan seem very appealing with low monthly payments, but because you never really pay down the principle, the overall cost can be extremely high. If you need financial help immediately and want to get out of debt fast, be wary of this type of loan, you would be better served to seek a professionally certified Credit Counsellor. If you do get a consolidation loan or similar product to say pay off credit card debt, it is very important that you do two things:

  1. Don’t fall into the trap of racking up your credit cards again! Far too many of us fall into the debt trap of ‘hey, I just paid off my credit cards, I owe nothing on them. Let’s go spend spend spend!
  2. Make sure you set up a regular payment plan to pay off your debt as quickly as possible, and make sure those payments include paying the interest and the principle!

Credit and Debt. Tool or Trap. That choice is in your hands.

It is also important to remember that as we prepare for retirement that we educate our youth about credit card debt and other forms of debt. Credit is all around them. It is very important that we teach them that the very second they use credit, it becomes debt! Without anyone to teach them how to use it properly they will have their own puppy dogs of debt following them into retirement.

You’re Not Alone – How Seniors Can Get Help with Their Debt

If you are struggling and trying to figure out how to pay off debt, take some comfort in the knowledge that you are not alone. In many ways, our seniors are among the most vulnerable when it comes to paying off and dealing with debt. If you need help, ask for it. You aren’t alone. We can help you.

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The sooner you start dealing with your debt, the sooner you’ll have it paid off. If you need some help getting started with a plan, or if you’re not sure if your budget is realistic, contact a non-profit credit counsellor for free, confidential help. Typically, the earlier you contact us, the more options you’ll have.

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