Four strategies for reducing debt in retirement

2020-10-05   minute read

Nicole Polak

Debt Solutions

Lifestyle Debt

Recent studies have suggested as many as half of Canadians are retiring in debt. And while most of these retirees are carrying mortgage debt, others are carrying vehicle financing, lines of credit, and credit card debt. Perhaps this shouldn’t be surprising given how normalized and even encouraged debt has become. 

Two people looking at a laptop with paper spreadsheets and charts on the table

Nonetheless, whether by choice or circumstance, many in this position often can’t enjoy many of the experiences they hoped for in retirement. Over time, they may even struggle to meet their daily living expenses without digging themselves further into debt. 

Here are four strategies for debt-burdened retirees to reduce and eventually eliminate debt on a fixed income.


The primary goal of refinancing is to ensure any debt you have carries the lowest available interest rate.  This reduces the total amount you pay in interest and generally helps you pay off your debt in less time.

Consolidation loan

A consolidation loan could be beneficial if you are carrying higher interest rate debts (> 9%) such as credit cards, payday loans, or sub-prime auto loans. Most banks offer consolidation loans; however, not everyone will qualify. This will depend on your income, your net worth and your credit history or score. 

If the bank feels you’re a higher risk, they may ask for collateral and/or someone to co-sign for the loan — both of which increase the financial risk to you and your co-signors.

Home equity line of credit (HELOC)

A HELOC may help you consolidate other higher interest rate debts if you own your home and have more than 20 percent equity available. This option typically offers a low interest rate and flexible payment terms. In many cases, the lender only requires interest payments every month.

Reverse mortgage

A reverse mortgage is another option if you own your home and have enough equity. These provide immediate access to cash with no repayment requirements, which is appealing for retirees on a fixed income. Instead, the mortgage is repaid when you or your executor sell the house. Reverse mortgages typically carry a slightly higher interest rate than conventional mortgages, but still typically less than many other loans types.

Make consolidation work for you

You may risk your debt levels creeping back up post-consolidation if you do not live within your budget.  If you go this route, we suggest you:

  1. Close all the credit accounts you consolidate
  2. Refrain from using new credit moving forward, and
  3. Incorporate a debt repayment amount into your budget that covers both the interest and a portion of the principle on your consolidated account.


Housing is the largest expense most retirees will have, followed closely by utilities, food, and transportation. We generally recommend these items not exceed 80 percent of your budget. This leaves a mere 20 percent for medical expenses, savings, debt payments, and discretionary spending — costs which retirees with fixed incomes often find meet or exceed their current household income. 

Downsizing your housing, food, and transportation costs may be an effective way to reduce your debt in cases where these exceed 80 percent of your household income or leave you with insufficient funds to meet your debt repayment obligations.


Houses can carry strong emotional attachments for many people, so the thought of selling can be  unsettling. However, the total cost of home ownership can be prohibitive. Even if you can cover your mortgage, property taxes, insurance, and utilities, you may struggle to pay for repairs and maintenance — such as a new roof, furnace, hot water tank, windows, appliances, fencing, etc.

Downsizing can reduce your mortgage and other housing costs. Alternatively, selling your home and renting instead can reduce the total cost of housing even further as your landlord would be responsible for any of the repairs and maintenance costs that often arise unexpectedly.


Vehicles are another item that can be reduced or eliminated. Like housing, it’s easy to underestimate the total cost of vehicle ownership. It includes the up-front purchase, lease, or financing cost, plus registration, insurance, fuel, and maintenance. The latter items can be hard to quantify unless you’re extremely familiar with vehicles or regularly track these expenses. 

It may be possible to have a single vehicle for the household of you’re retired or only one member of your household is working outside the home. You can sell any secondary vehicles to pay down debt and reduce overall transportation costs. You may even be able to live without a vehicle and use public transportation (buses, trains, taxi, car rentals, private cars for hire, etc.) for occasional needs depending on your proximity and what’s available in your area.

Clothes, clutter, and other sundry items

We tend to acquire things as we move through life, and it’s common to realize we’ve accumulated more than we need. This obligatory stuff often requires additional work and space just to store, manage, and maintain it.

Look at your possessions as part of your downsizing efforts. You could sell some and use any funds raised to pay down debt. Each item may not fetch a premium price, but they can add up quickly. An added benefit: it may make reducing the size of your housing quite a bit easier.

Extra income

The fundamental underpinning of retirement is freedom from full-time employment. However, you may still benefit from earning some extra money to supplement your fixed income while you’re able. Especially if you still have debt.

You could turn a hobby into a side gig (e.g. selling woodworking projects, knitting, artwork, etc.). Or you may seek out part-time, casual, contract, or gig work in a flexible and low stress environment for the first couple years after you retire. These solutions can be a great way to accelerate your debt repayment plan and provide some unexpected life satisfaction as you enter a new phase in your life.


Finally, no discussion about debt reduction would be complete without talking about your budget.  Some retirees struggle to adjust to the austerity of retirement. But failing to re-align expenses and income can make it difficult to pay down debt or even cause increasing debt loads.

Careful budgeting can help you to make big financial decisions like whether to downsize or consolidate your debt. It can also help you manage smaller expenses that are easy to lose track of but combine to have a significant impact on your financial wellness. 

Begin with an honest look at where you’re spending your money right now and setting a goal for how you wish to spend in the future. Your budget is a plan for how you’ll get from the former to the latter. It’s also a tool you engage with to monitor and track your finances in real time.

Review all your financial records (i.e. bank statements, credit card statements, lines of credit, etc.) and calculate your income and expenses over at least the past three months. Examine each expense and rank it in order of importance to your standard of living and quality of life. Then discuss opportunities to cut back with other members of your household. 

Some common areas where expenses are often higher than expected and lend themselves to swift reductions include dining out, discretionary shopping, travel, alcohol, smoking, entertainment, monthly subscription services, cable packages, and mobile phone packages.

Life-Changing Debt Solutions

A Licensed Insolvency Trustee may be able to help if you’re struggling to make your debt payments or meaningfully reduce your debt in retirement. During a Free Confidential Consultation, they will review your entire financial situation and discuss all the options available to get you the financial fresh start you deserve. These options may include a Consumer Proposal or Bankruptcy — both of which can reduce the total amount you owe and provide a clear timeline for helping you become debt free.

A Licensed Insolvency Trustee will explain the benefits, drawbacks, and their recommendations for every debt reduction solution they present — and provide an unbiased professional opinion on the one they feel would be most beneficial for the challenges and goals you have.

That initial call for help can be difficult. But it could be the first step towards the retirement you always

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