A recent poll by CIBC finds that on average, Canadians expect to be debt free by the time they are 56 years old although some Canadians see themselves carrying debt well into their sixties. In addition, nearly a third (29 per cent) say they have no debt while 13 per cent say they will never be debt free.
Highlights of the poll include:
56 is the average age Canadians expect to be debt free
21 per cent say they will be stuck with debt until they are over 65 years old
29 per cent say they are completely free of debt today
13 per cent say they will never be debt free
“While Canadians expect to be debt free by age 56 on average, not everyone will hit that goal, which means a significant number of Canadians will still be carrying debt during retirement,” says Christina Kramer, Executive Vice President, Retail and Business Banking, CIBC. “As debt repayment goals push closer to retirement age, it puts an added strain on your ability to save for retirement and manage your cash flow after you retire.”
More than half of Canadians 65 and over still owe money
The poll found that over half of Canadians aged 65-plus say they still carry some form of debt today, with credit card debt and lines of credit as the most common types. This group also said they didn’t expect to have their debts paid off until they are 70 years old on average.
“Cash flow becomes a top priority in retirement, and having to make debt repayments out of your income will create a drag on your finances and your ability to have the retirement you want,” adds Ms. Kramer.
Younger Canadians optimistic about debt repayment
Canadians 25-34 years of age have ambitious plans for debt repayment. This age group on average expects to be debt free by age 47. However, a closer look at those currently carrying debt suggests this may be an optimistic goal, as more than 68 per cent of Canadians 45 and over still carry debt, including 31 per cent who still carry a mortgage.
“What people need to remember when attempting to shorten the road to debt freedom, is that paying down debt is just one part of a broader financial plan that needs to include saving for retirement, managing day-to-day expenses and maintaining an emergency fund,” Ms. Kramer says.
Balancing debt repayment and savings goals
Of all Canadians with debt, 32 per cent say they have made sacrifices or cut spending to better manage their debt this year and 25 per cent say they have made at least one lump sum payment towards their debt on top of regular payments. This aligns with a CIBC poll conducted last December which found that paying down debt was the top priority for 2015.
“As our poll findings show debt repayment remains a top priority for Canadians, it’s encouraging to see that many Canadians with debt are setting goals and taking action to pay it off,” Ms. Kramer says.
Three steps to create a debt freedom plan
Becoming debt free takes time and dedication. It’s best to have a clear plan that outlines the steps you should take each month to get closer to your goals over time. Here are a few tips for putting your plan on paper:
Step 1: Assess your debt. Make a list of everything you owe, who you owe and when the payment is due. Be sure to note the interest rate and monthly payment amount, separating out how much goes towards interest as opposed to principal.
Next, add up the individual debts to find your total outstanding balance, and how much you are paying each month in interest to service those debts. Talk to a financial advisor about possible ways to structure your debt and potentially lower your interest costs.
Step 2: Set priorities. It’s essential to make at least the minimum payment due on each debt to avoid penalties and to keep your credit rating intact. Beyond the minimum, focus your attention first on the debts that are costing you the most — those with the highest interest rate.
Step 3: Establish a timeline. Like any goal, it’s helpful to have a deadline; it gives you a “finish line” to work towards. Keep it realistic and achievable. This is where it can really help to talk to a financial advisor.