|Minimum payment method
|Static monthly payment
|Accelerated bi-weekly payments
|Increased monthly payment
|2.5% of balance, calculated at time of payment
|$150 per month
|$75 every two weeks
|$250 per month
|Years of payments
|Total interest paid
|Total cost of borrowing
This plan only works if you limit further debt accumulation. Examine spending habits to see where you can make changes.
You should pay off lower-interest loans—which may include previously consolidated debt, lines of credit, and auto loans—if the interest rate is higher than the return you’d see on investing that money elsewhere.
Let’s say for example you can realize a 10% return by investing, and your auto loan is financed at 2%. It makes more sense to invest any additional money while maintaining regular payments on the vehicle. If, however, your interest rate exceeds your potential rate of return, focus on paying down the debt faster.
It’s much more common for older Canadians to carry mortgage debt into retirement, especially as the housing market heats up, and people are purchasing more expensive homes later in life. Wherever possible, reduce the cost of borrowing through biweekly payments or refinancing for a lower interest rate.
We strongly advise against counting on home equity to fund your retirement, so be sure your retirement income is sufficient to cover any continuing mortgage payments and source your income in the future.
Wherever possible, continue to save for your retirement. Paid off a loan or credit card early with accelerated payments? Keep making those payments into your retirement fund. Consolidated your high-interest debt into a low-interest loan? Invest what you’re saving on interest in your retirement fund.
Investing and growing your money tax-free in a TFSA and reducing your tax burden now by contributing to your RRSP will make a significant difference in the years to come.
Carrying debt into retirement doesn’t have to mean financial hardship. Paying off high-interest debts and investing wisely will put you on the right path to a healthy retirement fund. CPP, OAS, and tax credits for seniors can also help boost your retirement income. In the years leading up to retirement, you have the opportunity to reprioritize and make the most of the money you do have.