How to Reduce Debt Now for Future Financial StabilityOct 21, 2018
For Gen X, the idea of retirement is changing. With more middle-age Canadians needing to reduce debt, there’s a roadblock in the way of retirement savings, which seems difficult to budge. Our inaugural Affordability Index findings are showing just that, looking at how debt is affecting people’s ability to prepare for milestones like retirement.
According to the Index, 69 per cent of Canadians find saving for retirement the most challenging to afford. Of those respondents with “a lot of debt”, 82 per cent are unprepared for retirement. Surprisingly, even 61 per cent of those with “no debt” said they were also feeling unprepared for retirement.
This indicates a lack of financial stability (and literacy) among Canadians. One-third of GenXers surveyed for this affordability index report having no retirement savings and another 37 per cent say they have too little in retirement savings.
The Index shows us that saving for retirement is difficult right now, and personal debt is a big contributing factor.
With this in mind, if you’re struggling with your personal debt while trying to save for your retirement, it’s important to reduce your debt now and work to ensure your future financial stability.
How can this be done?
Making a plan of action for dealing with personal debt starts at home.
Start by shoring up your savings. A Canadian Payroll Association study from 2017 shows that nearly half of Canadians are living paycheque-to-paycheque, making it difficult to put money aside, as money is immediately going toward rent, bill payments, food, and transportation. That said, there are certain ways to shore up savings that some people may not know about.
Go beyond saving for a rainy day. Talk to your employer about any possible RRSP contributions — are you taking complete advantage of what they offer? What about other benefits? It may also help to seek expertise from a financial advisor, who can look at the type of retirement savings you have and whether it’s the right plan for your situation.
Improve your financial literacy. By getting to know more about finances, you can start practicing more mindful spending. There’s plenty you can do: create a household budget, get to know the difference between good and bad debt, explore different options for dealing with personal debt. Exploring websites like the Financial Consumer Agency of Canada (FCAC) can be eye-opening and help you define your strategy to reduce debt and start building your retirement savings.
Finally, turning to an expert can further your education. A Licensed Insolvency Trustee (LIT) can evaluate your debt situation and focus in on solutions that are specific to you. For those with overwhelming debt, a consumer proposal could be a good solution. A consumer proposal is an agreement your LIT creates with your creditor(s) on your behalf to repay a portion of the debt you owe without giving up any of your possessions.
For those in Gen X, taking the steps to reduce debt and be more financially stable can create bedrock on which you can start to build retirement savings. While it’s true more Canadians will be working side hustles into their retirement age, having savings to fall back on can still make it an easier lifestyle, and one you can spend your golden years looking forward to.