RRSP - To contribute or pay off bills?

[Glaucus]

So it's RRSP time (at least here in Canada) and I'm wondering what to do. I could put some money in an RRSP fund or pay off some of my debt. My thinking is that since I doubt the markets have hit rock bottom, and that when they do it's not likely that they'll rebound dramatically, that the net gain of my RRSP this time next year would be either negative or close to zero. Paying off my debts however will save me some interest in the long run and give me some extra breathing room, which will allow me to buy in more when the markets actually do recover. Of course an RRSP contribution will increase my tax return which could go against the debts as well, but it won't be as much as I put in. Also, interest rates are low these days so I may not be saving as much as I think. Any thoughts from the local finance gurus?

 

[Wayne]

Saving money while paying debt is sometimes applicable, but in this market, I think you'd be better off paying off the debt and having additional "free" income..

Wayne

 

[ltstanfo]

So it's RRSP time (at least here in Canada) and I'm wondering what to do. I could put some money in an RRSP fund or pay off some of my debt. My thinking is that since I doubt the markets have hit rock bottom, and that when they do it's not likely that they'll rebound dramatically, that the net gain of my RRSP this time next year would be either negative or close to zero. Paying off my debts however will save me some interest in the long run and give me some extra breathing room, which will allow me to buy in more when the markets actually do recover. Of course an RRSP contribution will increase my tax return which could go against the debts as well, but it won't be as much as I put in. Also, interest rates are low these days so I may not be saving as much as I think. Any thoughts from the local finance gurus?

I would recommend to always pay off debt first.

Regards,
Ltstanfo

 

[Glaucus]

Yep, that's how I'm leaning too.

 

[FluffyMcDeath]

So it's RRSP time (at least here in Canada) and I'm wondering what to do. I could put some money in an RRSP fund or pay off some of my debt.

That so much depends. What are the debts? How big are they? What rate do you pay?What's your tax bracket? etc etc.

If it's credit card, then pay it. Huge rates on those things. Don't let any balance ride that you don't need to.

Student loan? Well, mine are really small these days, the rate isn't good but the interest is tax deductible which makes the effective rate actually pretty good, so I wouldn't pay that off.

Mortgage on primary residence? That might be a good idea if you have the prepay that would go against principle but would also cover payments if you needed to miss them later. It also depends on your rate. Rates are quite low at the moment so the saving might not be that much.

It also depends on how much you need the cash. If you threw a few grand at a simple escalator giving 3.5% over the next 3 years then you'd be about the supposed inflation rate, you'd get a third back from taxes and you could put that on debt.

On the other hand, if you have a debt that is currently secured by property of yours that you would rather not be without and you can cover the whole thing, cover it.