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Is it better to pay off debt or invest in RRSP? |
Is it better to pay off debt or invest in RRSP? The general rule is to pay off debt first - ESPECIALLY higher interest debt, like credit cards, and car loans. Where the waters get murkier are when you are deciding to pay down your mortgage vs contributing to an RRSP, or when you are talking about borrowing to invest in an RRSP. Mortgage rates are not higher than the 10% RRSP ads often talk about, but you aren't guaranteed to get 10% on your money, either. Obviously, financial institutions that sell RRSPs, and 'RRSP loans", most of whom also sell mortgages, will steer you towards the position where you'll still owe the mortgage, AND you'll be investing in their investment vehicles. Even if the reason you're borrowing is to invest in the RRSP itself, it is often advised to avoid borrowing for long periods of time, since you cannot deduct the interest from investing in an RRSP, or any sort of non-taxable investment, and also, you are not guaranteed any sort of return (or even the principal) on your RRSP contribution, so if you fall on hard times and end up needing to collapse the RRSP, you'll have lost the RRSP room, and you'll still be paying back the loan. In the end, the choice is yours, which will likely be decided based on the level of risk you're comfortable with. Source(s): http://www.smokeandmirrors.ca/pdfs/cms_d... http://www.canadiancapitalist.com/2007/0... always pay off debt, then invest, in that order. I think you need to determine timing and other factors but remember that you should receive a tax credit up to half of the amount of your RRSP contribution. So I guess it depends on the amount of debt. Why not do both? Start your own business, its the way of the future. Depends if debt generates more interest than your investment or viceversa. |
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