Reducing Your Debt before Retiring

It is imperative to have a healthy portfolio before you retire. However, recent market volatility and rising inflation are presenting challenges and may have you concerned.

Many individuals have had to revise retirement projections with their registered retirement and pension plans as inflation has once again become an important factor in estimating your cost of living. And, with interest rising to tame inflation, it is increasing the cost of borrowing and making it essential in controlling and reducing debt.

The following are a few tips you can use to minimize and even eliminate debt altogether - even before you retire.

Consolidate Debt

By consolidating debt, you eliminate multiple payments and reduce the accumulation of multiple interest rates. Make sure that you shop around before consolidating credit card debt from one card to another. The terms and agreements are almost always in fine print and you need to know what the penalties, fees, surcharges, and time frame are before signing on the dotted line.

By consolidating debt, you now have the opportunity for one low monthly payment and one interest rate. This will open up the opportunity for you to pay off your credit card debt faster and eventually become credit card free.

Increase your credit score sooner with this strategy

Pay?your credit card debt three days before the statement date - instead of before or on the due date. The reason why this works is that the credit bureaus record your credit balances as of the statement date, and even though you may pay off your balances by the due date, it will not reflect with the credit bureau until the following month.

A higher credit score provides you with more favourable borrowing rates or higher credit limits.

Keep your credit utilization below 35% of your credit limit.

Apart from paying your debts on time, your utilization rate is a major factor in your credit score with the magic number being 35% or lower. For example, if you have a running balance of $2,500 on your credit card, you will have a 50% utilization rate with a credit limit of $5,000 versus a 25% utilization rate with a credit limit of $10,000. So, improve your credit score then request a credit limit increase to further improve it.

Eliminate Future Debt

The only sure-fire way to eliminate future debt is to live within your means. If you purchase something and use the thought process of figuring out how to pay for it later, you are already automatically in the danger zone.

Eliminating future debt is achieved by not creating it in the first place. Take a class on how to budget or attend a budget workshop. Seek the expertise of a financial adviser. Do not leave your finances to chance. By learning how to create and stick to a budget, you can guarantee yourself being free of future debt.

Refinance, Home Equity Lines of Credit, Reverse Mortgages

There are many finance-related workshops and seminars that are free of charge, and it would be a wise choice indeed to attend as many of them as you possibly can. This will help you to learn about whether or not it is in your best financial interest to refinance, obtain a home equity line of credit or not, and even the dos and don’ts of a reverse mortgage.

As with everything else, an informed consumer is a wise consumer. When it comes to matters of your money, seeking out wise counsel is the best choice to make.

Reducing your debt before retiring and learning how not to recreate it are two sure-fire ways to enjoy retirement more with fewer financial woes.

* Mutual Funds and ETFs provided through Carte Wealth Management Inc.

**?Insurance products such as?segregated funds, life, disability, and critical illness insurance are offered through Carte Risk Management Inc.

Mike Sukhram, MBA, FMA, PFP, CIM | Financial Adviser | Carte Wealth Management Inc. | 425-6755 Mississauga Rd., Mississauga, ON L5N 7Y2 | Tel: 905-891-7171 | msukhram@msadviser.ca | www.msadviser.ca