/ Published 11:13 AM EST / Liza Chalaidopoulos-Isaacs

Finance 411: Contribute to RRSP or pay off debt?

Each month we ask a Manulife Thought Leader to answer a question from our community. This month, John Natale, AVP Tax, Retirement & Estate Planning Services answers this question:

What’s better? Paying off my debt or contributing to my RRSP?
According to Natale, the answer depends on what kind of debt you have.

Credit card debt 
Consumer debt like a credit card often comes with a double-digit interest rate, which is a lot different than the interest rate usually associated with a mortgage or car loan.  If this is the case, it should definitely be paid off before you start contributing to your RRSP.

Debt with a lower interest rate
If the rate is low (around 3%) and you can tolerate some risk in your investment portfolio, consider contributing to your RRSP. At the end of the year, assuming a reasonable rate of return, the tax benefits from the RRSP would outweigh a quicker repayment on a low interest debt.

If you’re not sure how to figure out the best plan for your finances, an advisor can help. Don’t have an advisor? You can find one here.

John Natale.About John Natale
John is the Assistant Vice President of the Tax, Retirement & Estate Planning Services team for Manulife Investments. He has in-depth experience with estate planning, wealth management strategies and a wide variety of general tax matters including trusts and annuities. John is a frequent speaker at industry events, has published articles on estate planning and income strategies, and has appeared as a guest expert on BNNTV.