Why You Need to Get Rid of Credit Card Debt NowOct 14, 2018
Credit cards carry one of the highest interest rates of any form of personal debt, increasing your overall debt level — and Gen Xers tend to have more of it than any other age group.
With an average interest rate of 18 per cent, it’s no wonder consumers have trouble paying off their credit card balance. As we recently discovered in our Affordability Index poll, more and more people are struggling to make ends meet. With essentials like heat and water challenging Canadians’ finances, it may not be the best time to increase your credit card debts.
As household debt continues to hover at record levels, many Canadians are feeling more overwhelmed by the prospects of staying financially afloat. And a lot of individuals who are unable to live debt free are also unable to save for the future, putting their retirement at risk.
Why saving for your retirement needs to be a priority
Saving for retirement is considered the number one need by 79 per cent of Canadians, according to our poll, yet 69 per cent say saving for retirement is the most challenging goal to accomplish. That’s no surprise as consumer debt and rising living costs makes living almost unaffordable for many Canadians.
We found that a significant number of Canadians are putting off goals and expenses just to make ends meet.
Now is a critical time, for working-age (or capable) people, to be saving for their retirement. Living costs are high, and people are living longer than ever before. That’s why some experts suggest saving enough so that you can support your lifestyle until the age of 95 – a 25 or 30 year retirement fund, or more, if an unexpected event like illness, disability, or job loss, forces you to retire early.
Create a debt reduction plan
Consumer debt and credit card debt can send your finances into a tailspin. High interest rates can make it difficult to pay them off, and you’ll pay far more than the value of your purchases.
For Gen Xers especially, conflicting financial priorities can cause more debt. Mortgage payments, high costs of living (utilities, transportation, and groceries), family expenses, or student loans can mean that people are using their credit cards for purchases more often than they want or should.
Take an honest look at your debt. Plug your credit card debt into this online calculator to see how long it will take you to pay off and what you’ll be paying in total. You can see how increasing your payments even slightly can really help in the long run.
Having a budget can be a financial lifesaver. Review your finances regularly and adjust your budget accordingly to make the most of your income. Tools like Mint’s mobile budget or an online resource like My Money Coach are easy to use and help you keep your priorities in order.
Paying off your credit card debt should be a priority, but as you make progress on your debt reduction goal, you should adjust your plan so that money that used to go to debt repayment is redirected strategically. Put money that you’re freeing up into a retirement savings, and build up your emergency fund, that way you won’t need to rely on credit cards if unexpected costs arises.
Don’t forget that asking for help can lighten the load. If your credit card debt is overwhelming, talk to a professional like a Licensed Insolvency Trustee (LIT) to understand all of your options and provide you with advice on solutions that will work for you.