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Options for shedding debt during retirement

By Kira Vermond

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Maxed out credit cards and little cash to pay off them off. While this seems to describe typical young Canadians, seniors are finding themselves in similar predicaments. But there are ways for retirees to climb back out of the debt hole.credit_card-debt-seniors

A report from Equifax Canada Inc. indicated that the average debt for consumers aged 65 and older showed the greatest year-over-year increase of any age group, climbing 6.5 per cent.

Robert Gignac, author of Rich is a State of Mind, says he isn't surprised that so many retirees, particularly those who are still relatively young and have depended on credit for years, are in financial trouble now.

"For the new seniors, expectations are radically different from those of older seniors. They've fallen victim to the marketing machine stating that all seniors are entitled to an affluent lifestyle," he says.

In reality, people entering retirement with tens of thousands of dollars in credit card, line of credit and car loan debt may find it almost impossible to pay it off with a fixed income.

But paying off debt should be a top priority. Holding debt is expensive, and, come retirement time, every dollar counts. For instance, say your debt load is $58,000 spread across a number of cards with a combined interest rate of 15 per cent. If you make only minimum payments, in one year you will shell out approximately $8,350 in interest. That's money most seniors just can't afford to spend.

While there is no one perfect way to get out of debt, there are some steps seniors can take to get back in the black sooner.

Get a job. There are only two ways to pay off debt: make more money, or save more money and use the leftover to tackle the bills. While going back to work after retirement may seem unpalatable to some, if you are healthy enough to work, a new job may be the way to go. Making only $150 extra dollars a week and using it to pay down debt can make a huge difference.

Take on more investment risk. Think your years of investment accumulation are behind you? While in the past the retirement advice was focused squarely on preserving money and investing in low-risk options, times have changed, says Gignac. "Investments returns have been anemic for years, particularly for the fixed income side." So instead of earning a lackluster 1.5 per cent on a safe GIC or bonds, it's important to invest in at least a few products that offer the possibility of a higher return. Balance is still the key. If your investments make some money, don't spend it, use it to pay down debt.

Sell the house and rent. While your house is a home, no doubt, it's also an investment that may at some point be cashed in. If you're saddled with too much debt to live comfortably, that time is probably now. Unless you've borrowed against it to supplement lifestyle in the past, there's money to be had today. But think twice before buying a new home -- consider renting instead. You'll avoid realtor commissions, lawyer's fees and land transfer taxes. Again, use the money you would have spent on transaction costs to wipe out what you owe.

Ask for help. Some retirees find themselves in debt after helping their financially struggling adult children. Gignac advises others to swallow their pride and ask their kids for financial assistance. Explain how much you're paying in interest and how much it is having an impact on day-to-day living. If children or other relatives can't help, it may be time to consult a debt and credit counselor. In some cases they can negotiate a better interest rate or payment schedule.

See related: 7 ways to clear credit card debt before retirement, Credit cards can help you make smart RRSP choices

Published: December 10, 2013