An RRSP contribution can help you find money to pay off your debt. How? There are a couple of ways:
- Contribute savings to your RRSP. Then take the amount you save in taxes and pay down your mortgage. Tip: If you contribute to a Group RRSP at work, your employer may reduce the tax withheld from your pay each month. That means you won’t get a big refund in April. You may not have noticed, but you will already have received your tax savings. In this case, you will need to estimate the amount of your total tax savings. You can then arrange to have part of this amount taken from your bank account automatically to pay down your mortgage.
- Take out an RRSP loan. Then use tax refund to pay off your higher interest debt. It’s one way to reduce your debt costs, but you need to be sure you can still handle the payments within your current income. Tip: High interest debt is often the result of over spending. Before you borrow to pay it off, make sure you fix the underlying problem. Otherwise you’ll just take on new debt as soon as you pay off the old.
These strategies work for many people. But you need to do the math to see if they work for you. Or, see a qualified financial adviser.
Content in this section is provided in partnership with the Investor Education Fund, a non-profit organization promoting financial literacy to Canadians. To find out more go to GetSmarterAboutMoney.ca.