Yup – it’s that time of year again – last minute RRSP contribution time! So – do pay down debt or try to put a bit more into your RRSP? Here’s some tips to help you decide:
1. What kind of debt are you carrying?
If you’ve got high interest credit card debt, that should be your priority – 10, 15, or 20 percent in interest payments can do you in financially. Mortgage debt on the other hand – not so bad.
2. How much do you owe?
Carrying a big debt load is a heavy burden both financially and emotionally. If you’re struggling to make mortgage payments or have a ton of high interest debt (read: credit cards) then you might want to make debt repayment a bigger focus.
3. How old are you?
If you’re fairly close to retirement – you should really be focused on paying off debt. Making interest payments on a fixed income is no fun – especially if rates go up and you find yourself strapped for cash.
4. How much do you make?
The more you make – the more bang for your buck you get from your RRSP. If you’re earning in the top tax bracket, every 1,000 you contribute nets you a 400 tax break!
5. What kind of RRSP do you have?
If you have a group RRSP and your employer matches your contribution, then you should be taking advantage of it! That would be money lost, otherwise. Where I work, if I buy stock in my company in an RRSP, my employer will match it up to a certain amount.
6. What does the math say?
In the end, it’s a fine balance between what you’re paying on your debt and what you could be earning in your RRSP – do the math to see where you stand. One option is to use down your refund to pay down debt – but you have to have the self discipline to actually do it!
What’s your top priority – RRSP or debt payment?