High interest debt can severely damage a person financially. For older Canadians, it is keeping them from being able to retire at the age in which they should be able to. For some, they do not see when they are going to be able to retire at all.
Right now, Canadians over the age of 65 have the highest rates of bankruptcy and insolvency. This has something to do with the fact that they have had a long time to rack up debt and, unfortunately, they felt when they incurred the debt that they would have plenty of time to pay it off. Time is certainly not on anyone's side, especially when it comes to paying off debt.
Because credit card debt has a significant role in why there are many older Canadians still working, it is important to know what has happened to cause the financial grief. Knowing these causes can help younger Canadians understand what not to do so that they can retire at the appropriate age. Knowing the scenarios also help older Canadians start doing what they need to in order to repair their financial situation enough to allow them to retire comfortably, even if they are not able to retire on time.
The first scenario is spending too much on credit. Research has found that older Canadians spend 95 percent more on credit than what they do during their peak earning years. Because most Canadians make 20 percent less after they retire, this may have something to do with the increased spending on credit. However, there is less money to pay it back with and that means it is going to linger on and become very expensive. When this happens, some individuals over the age of 65 find themselves having to work part-time or find a less physically demanding full-time job with lower earning potential than their former occupation.
A second scenario is budgeting that is out of control. It is easy to make a budget, but it is another thing to stick to it. It is best to organize spending into five categories. Those categories include life costs such as personal care and food (25 percent), transportation (15 percent), housing (35 percent), savings (10 percent), and debt repayment (15 percent). Many Canadians over 65 are spending more than 15 percent on their debt repayment while trying to keep up in the other categories. In fact, that 15 percent can be easily turned into 60 percent when credit card debt has been mismanaged. From there, housing expenses barely fit and personal care and food starts to suffer because only 5 percent of the income is left. That means no 10 percent for savings and no 15 percent for transportation. Before long, either debt repayment or housing suffers, ruining credit, because a person has to eat and they have to have fuel in their vehicle.
The third scenario is living longer than the money lasts. Approximately 50 years ago, the average Canadian had a life expectancy of 74 for females and 68 for males. If a person were to retire at the age of 65 in the 1960s, they would have plenty of money to support themselves for their remaining three to nine years. Now, Canadians need around 14 to 20 years of funds to pay their expenses. This is due to the average lifespan increasing to 83.3 years for women and 78.8 years for men. That is quite some time for seniors who are homebound to be hounded by collection agencies.
The fourth scenario is the loss of assets. After the economy went bust in 2008, many investors saw the values of their portfolios decline. Others saw their portfolios completely destroyed. Now that interest rates are being kept low, many seniors are not able to find investments that are safe and that will generate enough income to pay back the debt that they owe. In 1990, the average return was 10.89 percent on a one-year Guaranteed Investment Certificate. Now that same certificate gets a return of around 1 percent per year.
The fifth scenario involves those that have taken responsibility for the debts of their children. There are a number of Canadians that are retired and did so in good financial shape. Unfortunately, many have depleted their nest eggs as they have helped their children and grandchildren with their money problems. There are also those parents and grandparents that share credit cards with their children and grandchildren. Much of this was due to the recession and, as the recession worsened, nest eggs shrunk. What older folks are left with is limited opportunities for recovering their money and rebuilding their credit.
For Canadians that have seen one or more of the above scenarios, the goal is to take control over credit cards and other debt, rather than allow the accumulated debt to control their lifestyle after retirement. One way to fix this is to prioritize credit cards by paying off the ones with the highest APR first and then working down to the others. By doing this, a lot of money can be saved in the way of interest rates.
If credit card debt is not the only problem, it pays to look at other high interest debt and focus on paying it down as soon as possible as well. This eliminates the very expensive debts first, thus saving a lot of money on high interest. The sooner these debts are eliminated, the better off you are going to be financially. When they are eliminated, you can then focus more on having a great retirement instead of worrying how the bills will get paid.
All in all, it comes down to gaining control as soon as it is realized that there is a problem. It is a process with the most significant debts being taken care of first so that money is saved in the short-term and the long-term. From there, it is about the proper management of the remaining credit cards to ensure retirement is comfortable and not worrisome.