Q&A: Cash RRSPs?

Question: Should I cash in my RRSPs to pay down debt? The debt to income ratio is about 46%. – Steve W.

Gordon Pape answers: Your debt to income ratio is actually quite reasonable and well below the national average of 148%. However, what’s really important is the type of debt you’re carrying and whether it is putting a strain on your personal finances.

The worst type of debt is carrying a credit card balance because of the high interest rates imposed. If most or all of your debt is owed to Visa, MasterCard, etc., you are paying hundreds and perhaps thousands of dollars a year in interest. In that case, the RRSP option might be worth considering. If, on the other hand, most of the debt is in your mortgage than I would not advise cashing in your RRSPs. Mortgage rates are very low right now and you can probably get a better return by keeping the money in your retirement plan.

Remember that cashing in an RRSP means the withdrawal will be subject to tax. So you’ll actually receive less (perhaps much less) than the value of the plan after the Canada Revenue Agency takes its cut.

Do you have a money question you’d like to ask Gordon? Send it along and then check out our Q&A section regularly to see if it was chosen for a response. Sorry, we cannot send personal answers.

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