Slash Credit-Card Debt Before You Retire

How to dig out of your toughest debt trap: high-interest credit cards

Retirement - the house is paid off, tuition bills are a thing of the past. It's a time in life when debt is but a distant memory, right?

Research shows this isn't the case for a growing number of older adults. A recent survey by CIBC, for example, found that three-quarters of baby boomers (between the ages of 45 and 64) were in debt, and 42% of them saw those debts as obstacles to reaching their financial goals.

Credit card debt is one the most expensive forms of consumer borrowing. While it's easy to fall into the credit-card trap, it can be difficult to get out of it. If you find yourself struggling with credit-card bills, here's a strategy you can use to break free.

First things first: Write down the balance you owe and the interest rate you pay on each and every credit card you have.

Next, create a repayment schedule, concentrating on paying off the card that charges the highest rate first. Consider transferring balances to a lower-rate card, but first check the transfer fees, and find out how long any advertised rate lasts. You don't want a new card to end up costing more than the old. You also don't want to miss any credit card payments. Not only will you be charged a late fee, but in some cases the interest rate may be raised on that card, or even all the other cards you have.

While you're paying off your debt, limit your use of credit cards by paying in cash when you can. Consider cancelling the cards you don't need, if only to avoid future temptation. Hold onto the ones that charge the lowest rates or offer the most perks, such as airline miles. Let go of those that charge an annual fee or carry a high interest rate. Store cards typically charge high interest and should be among the first to go, unless they offer benefits that are meaningful to you, such as savings days for cardholders or free alterations on clothing purchases.

Before you cancel a credit card, keep this in mind: Doing so may increase your debt-to-credit ratio, which may in turn lower your credit score. That's the number lenders use to determine your creditworthiness. Also, if the card you cancel is one you've had for many years, you may hurt your credit score because lenders see having a long credit history as an asset.

But don't think that means you have to hold on forever to cards you don't want. Yes, if you close an account, it's possible that your credit score may be affected, but over time it may rebound, especially if you keep paying down your debt.