# Restarting life, what are the best ways to do?



## vigmoney (Feb 23, 2012)

From my previous posts you would have noted that I had an emergency and had to use most funds and got pay day loans etc.. 

My dad recovered from his loss and guess what he has paid me 2x what I gave him for recovery.

As of now I consolidated all my unsecured debts and totals to about 56000. I have to pay ~1400 for next 40 months.

My total income per month is around 4000. Since I was living so so tight for the last 7 months my monthly expense is cut down to around $900.

Now that I have $80,000 in cash what are the best options?

Pay off consolidation?
How much to invest in RRSP? (I withdrew about 16,000 this year so I have to re invest back so that I don't pay tax)
TFSA?

Thanks for all you help guys


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## mrPPincer (Nov 21, 2011)

Do you have 16,000 in contribution room?
I would definitely max out* RRSP contributions this year to counterbalance as much of that withdrawal as you can.

I would also pay off all the debt while the money is there.
Using borrowed money to invest is called leveraging, and that can work against you.

Paying down the debt now is a 100% guaranteed return.


*edit: my assumption was that you do not have 16K in RRSP room because I think once you withdraw that 16K, you do not get 16K room back unless you use a heloc. If you actually still have up to 16K contribution room left in your RRSP I would use at least that much, and any more depending on what your income tax situation is.
The question is how much contribution room do you still have?


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## Four Pillars (Apr 5, 2009)

Wow - that was a quick turnaround.

I agree with mrPPincer. 

But, I wouldn't go overboard with the rrsp for 2012. If you contribute $16k to balance the taxes, that should be enough since your net income will be dropping tax brackets. 

In 2013, you can think about how much to contribute.

Now would be a good time to think about investments etc, but I would consider paying off all your debts.


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## Pennypincher (Dec 3, 2012)

I would put as much into your RRSP's as you can, but also factor in what it saves you for taxes. Most tax programs can show you what your optimal RRSP contributions should be. Have an emergency fund as Royal mail would tell you  I suppose a TFSA could be considered a an emergency savings fund.

Promise to never ever ever use a payday loan ever again, ok?

I am glad things are looking up for you and your dad so quickly.


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## MoneyGal (Apr 24, 2009)

I hope I'm understanding this right. 

First, get to zero: 

1. Pay the loan. That takes $56 of your $80K. 

2. Contribute $16K to RRSPs. Now you are down to $8K left over. 

3. Take your $8K. Put in TFSA in high-interest savings account.. That is the beginning of an emergency fund. 

4. Now develop a financial plan going forward.


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## Spudd (Oct 11, 2011)

I agree 100% with MoneyGal.


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## vigmoney (Feb 23, 2012)

MoneyGal said:


> I hope I'm understanding this right.
> 
> First, get to zero:
> 
> ...


Sounds good. I'm going to pay off all my debt and then put the money back in RRSP and TFSA. As a result of consolidation I lost my credit card. I'm looking to get a $1000 secured visa card just for visa purchases. So $7000 would go in TFSA. I plan to get a car as 2 hours commute to work on bus kills me. Hopefully from now thing will change. 

Since I'm already on consolidation how bad is my credit rating affected. Now that I'm paying off my debt will that put me back to 858 mark?


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## Cal (Jun 17, 2009)

Pay off all of your debts and get a free credit check to find out. Equifax or....transunion. I think are the 2 companies to check.


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## lifeliver (Aug 30, 2010)

Pay off the debt asap. Personally, I would not be able to sleep at night with 56k in consumer debt.


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## YYC (Nov 12, 2012)

+1 on MoneyGal's strategy.


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## sags (May 15, 2010)

It sounds like by "consolidation" you mean a consumer proposal.

If so.......the interest rate on the debt is 0%, so there is no financial advantage to paying it off early.

If you are in a proposal, a record of the proposal will remain on your credit rating for 3 years after completion.

The negative debts involved in the proposal will come off 3 years after the proposal is completed.......or the time limits in your Province (6 years in Ontario) whichever come first.

There is the advantage of returning to better credit earlier........if you pay the debt earlier.

But it isn't an instant turnaround. It will still take some years to regain a good credit rating and will take some borrowing from several sources to do it. (loans, credit cards).

So bear in mind that once the proposal is paid off........you can't get the money back and you won't qualify for credit.

Perhaps you could pay some of the proposal and hold more back for a safety net?

If you are not in a proposal, disregard the above...........but a consolidation "loan" wouldn't trash your credit rating or cause the need for a secured credit card.............so I took a logical guess.

A lot depends too...........on your ability to live within your budget.


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## marco_salinas (Aug 15, 2012)

I agree also with MoneyGal's tips for you. I'm sure you can if you do.


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## vigmoney (Feb 23, 2012)

sags said:


> It sounds like by "consolidation" you mean a consumer proposal.
> 
> If so.......the interest rate on the debt is 0%, so there is no financial advantage to paying it off early.
> 
> ...


I didn't enter a consumer proposal, but it was credit consolidation that still has R7 status. 

Anyways before even them sending anything to my creditors I paid off all my loans/cc balance and payday loans. 

So I have 0 debt right now.

As of today I have 18K in RRSP and 11k in TFSA. I'm going to be really tight in spending except for getting a car. I will focus on my self business and hopefully will never have debt again in my life. 

My only question is how much credit limit should I be having in my credit card. I'm 100% sure RBC would be give me high limit as all my debts are paid but to avoid me overspending should I stick with $2000 current limit or have more for emergency?


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## marco_salinas (Aug 15, 2012)

pay all the debts to avoid interest and save the remaining for other expenses later on.


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## lonewolf (Jun 12, 2012)

Money gal nailed it again.

A big financial mistake people make that is often promoted by the instutions making money from thier clients is to max out RRSP then use the refund to pay of loan or mortgage. The bank is making fees from the RRSP investment & more interest from the loan. It is in the banks best interest to promote the stratagy. Most take the bait which might be the best stratagy but most of the time it is not. The more years putting money into an RRSP delays paying off debt & or the mortgage the worse the stratagy of putting money into an RRSP instead of paying off debt seams to be.


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