# Is this crazy



## Adamyoungiam (Jan 18, 2012)

So I'm in extreme debt repayment mode and have been for about a year. I've paid off about 3000 but recently. Bought a newer car which was planned and I knew was a Long time coming.
Now my idea is I just surfed my cc debt to td visa for low 2.9 for 6 mos. I plan to attack that with vigor. With the balance left I have about 5000+ in a rrsp account that I'm considering cashing to pay off the remaing debt. I also have my regular rrsp that I regularly contribute thru work. The rrsp I'm considering is an old one I haven't contributed to in years. 
So I guess my question is first does this make sense and second is this a good idea. I know I'm losing out on the compound interest and the time factor but my theory is get this burden out. Start over using the mass amount Im using to pay off debt to rebuild my portfolio.


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## 0xCC (Jan 5, 2012)

It could be crazy, it depends on whether you really understand the implications of the plan. If you do take the money out of your RSP you need to understand the tax implications of that action. I think that since you would be withdrawing $5k+ your financial institution is obligated to withhold 15% for income tax purposes (although it might only be 10%) so that will leave you with only $4250. On top of that when you do your income taxes for the year you will have to pay back more than that if your marginal tax rate is higher than the tax that was withheld. That either means you will owe the CRA money or your tax return will be lower. The main point is that although you have $5k in that RSP there really isn't any way to get $5k into your hands unless you have almost no other income in the year that you withdraw that amount from your RSP.


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## the-royal-mail (Dec 11, 2009)

I do not understand why you are contributing new money to RRSPs when you are currently in debt repayment mode. This is the time to have all hands on deck when it comes to deploying cash for debt repayments.

Contribute to RRSPs later. Seriously.

And please do not touch your existing ones. You're going to get nailed with fees and taxes. Not worth it. Just stop contributing more.


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## v_tofu (Apr 16, 2009)

I've never heard of a work rrsp. Unless they are matching your contributions in some form of a %, I would put that towards your cc debt.

I would have NOT bought a new car, but I suppose that's already done and over with.

The fact you already have a plan down to pay off your cc debt is good. I'd say leave the RRSP for reasons others have mentioned, and just work at getting every cent off that cc debt.


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## Four Pillars (Apr 5, 2009)

I guess the question is - do you need to cash in the rrsp to pay off the debt? What happens if you don't and just pay it down from your regular cash flow?


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## stardancer (Apr 26, 2009)

v_tofu said:


> I've never heard of a work rrsp. Unless they are matching your contributions in some form of a %, I would put that towards your cc debt.
> QUOTE]
> 
> A work RSP is becoming more popular. Most of our local mines have such a program. The employee contributes (example) 5% of his/her pay, and the company matches it. Companies have different percentages and matching formulas. If you leave, the RSP is yours to keep.
> ...


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## financialnoob (Feb 26, 2011)

Generally, I would think this doesn't make a lot of sense, but depending on the numbers and some other factors, it could work.

Your current income level is important because withdrawing would add to that. If you're in a higher tax bracket, the tax hit on the withdrawal could be substantial.

Are your RRSPs currently invested in anything? Would there be penalties for breaking these things? Or are they just gathering dust with a token interest rate? 

If there's not much interest, one might argue the savings in potential CC interest would outweigh the minimal gains. Then again, you'd lose that room forever, but if you aren't planning on maxing out your contribution room, it might work.

Why the rush to get rid of the debt so urgently? I'm not saying debt is a good thing, but you seem willing to do anything to erase it as quickly as possible, which makes me wonder how you even accumulated it in the first place?


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## RoR (Jan 18, 2012)

I wouldn't touch the RSP's. You have this low rate for 6 months, what about when the low rate is over applying for another card somewhere else to transfer the balance for another low rate, and cutting up this card? How much do you expect to have left after the 6 months? Can you pay it all off in a year?


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## Oldroe (Sep 18, 2009)

My question is way do you have this CC debt.

What other bills are ignoring.

DON'T cash RSP, what is it invested in.


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## jcgd (Oct 30, 2011)

Plus once you withdraw from the RRSP, I believe you lose that amount from your contribution room. In other words, you can never recontribute that amount in the future. This may or may not matter to you.


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## Adamyoungiam (Jan 18, 2012)

Well its not that im in any financial trouble or anything like i said i just want to be done with this debt. We got into trouble after the wife lost her job. She went back to school and is just about done actually. But its been a struggle to basically support the family on one income and i must admit from time to time i get my spending out of hand but normally im a tight wad. lol
The RRSP thru the bank i opened when i was young and havent contributed to it since I got this job 6/7 yrs ago.

What did you mean about your contribution room ceiling. Didnt think RRSP had a contribution ceiling. Thought that was just TFSA. 
I plan to have about 3000 left of the debt after the 6 mos. period and thats if nothing comes up.Anyways after that my interest is 9.75% still managable but i was thinking that its silly to have debt collection at that when odds are im not that having it sit in there. Just start fresh, still have to pay off the car but life becomes a little more manageable. 
I guess the rush is to start building wealth now even if i have to take a smart hit to start


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## 0xCC (Jan 5, 2012)

Both TFSAs and RSPs have contribution limits. The difference between them is that the TFSA limit is the same for everyone (ignoring withdrawals) but RSP contribution limits are based on income (I think it is18% of income up to a maximum of $22,500 or something like that).

The point that others were making is that since you have used contribution room to put the money into the RSP you will lose that amount in the RSP forever if you take it out (unlike a TFSA).


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## Spidey (May 11, 2009)

I would continue with your good work regarding debt repayment but I wouldn't cash in the RRSP. If it is invested in something or a company that is not performing I would switch it to something/somewhere better.


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## Guigz (Oct 28, 2010)

Sell the car!

If you bought it new (with cash) at a dealer, try to see if the dealer will allow you to downgrade to something less expensive. If you are financing, the situation is worse and it might not be possible to downgrade. 

At 9.75%, you are paying 300$ per year for the priviledge of borrowing 3,000$. And this is assuming nothing new comes up. Did you budget for winter tires? More expensive insurance? Rustproofing? Tinted windows? Although most of these are unecessary, new cars tend to come with all kinds of "unexpected" expenses. 

I am against the idea of taking out your RSP for paying the credit card as well. Assuming that you are in the 30% bracket, it will cost you 1,500$ in taxes to withdraw 5,000$ and then you lose the tax free coumpounding FOREVER. You are essentially robbing future YOU in order to pay for the "mistakes" of past YOU. No need to tell you that this is not a good idea.

Another option would be to get a second job(a few hours per week) to help in paying the debt quicker. Even 50$ a week will quickly burn a hole in your debt.


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## Adamyoungiam (Jan 18, 2012)

Well the car is not new, but it is financed. Altho I keeping it. Getting rid of
The credit card debt is the goal but the car has been included and is feasible. I understand that it does slow the process down but it is something I have planned for a long time. So yes extra insurance was planned. 
Unfortunately I don't have any extra time to get another job. I currently work in auto stamping so really a second job isnt necessary. I've been working 6/7 days a week so overtime has chipped away quickly at the debt. 
Plus my wife is done school in April which will take some of lifes financial burden off my shoulders and will free up more cash. Probably only 100-200 mo. But it'll help. Plus after our Disney land trip in may that frees up another 100mo. (that trip has been saved for well over 2yrs so no judgement. It's one I the have tos the wife says. Lol) 
So I don't think I'm going to cash out but im going to move them
In with my other rrsp. No point in having a lone rrsp sitting when it can compound with it ls friends. 
I guess I just wanted to speed it all up. Like
I said before I've doing this since last January and it's really draining. I just want to move onto step 2 already. Lol.


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## Plugging Along (Jan 3, 2011)

I know you said that you want to spend it up, but the fact that you are still financing cars and trips indicates otherwise. You said these are planned, which are fine, however, you can't have it all. We'll at least not all at the same time. You actually would have been better to pay the $100 that you were saving to Disneyland into your debt, and then finance the trip. The reason is that you wouldn't have paid the interest over the last two years, and would be slightly ahead. However, I suspect that you did not do this because it would seem 'uncomfortable' to borrow for a vacation. Therefore, it feels better to say that you saved up for it, so it's okay. I'm not trying to be harsh on you, but this is the way people (in general not just you) think. Really, if a person has any consumer debt, even if they 'save' for another item, they are still just moving funds around. 

It's great that you are bringing down you debt. You have said that you are handling it. My advice is just continue with your plan to pay off you debt. If you want to pay it off sooner, then you either need to find a way to make more money, or spend less. There's really no other way around it. 

I would leave the RRSP, and just pretend it is no longer there so you have a little 'insurance', and you don't have to take the hit. Once you pay off your debts, you'll be in a position to start thinking about investing again. So just let that money grow.


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## Adamyoungiam (Jan 18, 2012)

Ya I understand the backwards way about it I'm taking but it's the wife's trip that she's been planning before she gets into the work world. It's a have to and deal with it plan. So I just work around it. I know te car wasn't te greatest solution but it needed to be done. And I really didn't buy new. Just upgraded to reliable


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## Guigz (Oct 28, 2010)

Adamyoungiam said:


> It's the wife's trip that she's been planning before she gets into the work world.


It is great that she planned the actual trip, did she also give a thought as to how to pay for it? 

It seems to me like you do not really care that much about the trip (based on how you say it is "her trip" and such). Maybe it would be feasible to have her reconsider the trip until after you have paid your credit card debt. You have already been waiting two years to go, six months extra will not kill you. You both are adults after all, sometimes hard decisions need to be made. This debt will continue to slow you down until you pay it.

Think about how much more freedom you would have if you did not have to pay 300/month in debt repayment.

I am not trying to be hurtful, I am just trying to show you that the options ARE there, you will have to decide which to take. Some are easier than others.


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## Oldroe (Sep 18, 2009)

I think you moving in the right direction. Keep working on your financial situation until you get ahead of the curve.

We put $100 a week in a can for vacations. We put X amount of money away every week for yearly bills house tax,All insurances ect. Then we have monthly bills. All this stuff happens automatically we just pay when the bill arrives. 

I hate that word budget put the bills are payed the investments made then it's yeppee time.

For the most part our financial life is stress free and boring. If you get to this point life will be fun.


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## Adamyoungiam (Jan 18, 2012)

I call it her vacation because it's her dream vacation to take the kids to Disney world, and to me to make her happy and te kids happy like that will be worth te 6-12mos. Longer it'll take to pay it down. It's a memory payment and those kinds I'm ok with. Spending 4g on a bf tv is another matter. Lol
But anyways moving on you har me convinced to leav te rsp alone and continue to pay down debt diligently. 
My next question is what I should do with the excess funds when the consumer debt is paid off. I want to invest but do I first max out the tfsa or is it ok to split it between that and a non-registered account. Btw I'm already planning on upping my rsp contribution to 10%. So this is a question of what to do with the remainder.


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## Guigz (Oct 28, 2010)

I prefer tax free growth over capital loss deductability.

Hence, I recommend that you max your (and your wife's) TSFA before even considering non-registered investments.


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## Adamyoungiam (Jan 18, 2012)

Oh ya i forgot about the wife's tfsa too. Lol. 
Now I was thinking about using td eseries and the couch potato method. I also like the idea of dividends and drips. I'm extremely new at this so is there anything books wise that can make me a little more of an informed investor. I'm thinking about ordering the millionaire teacher with my swag bucks but is there any other great recommendations


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## Oldroe (Sep 18, 2009)

Then it's time for 3 tier savings. Just do a site search.


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## Oilers82 (Jan 17, 2011)

Plugging Along said:


> I know you said that you want to spend it up, but the fact that you are still financing cars and trips indicates otherwise. *You said these are planned, which are fine, however, you can't have it all. We'll at least not all at the same time.* You actually would have been better to pay the $100 that you were saving to Disneyland into your debt, and then finance the trip. The reason is that you wouldn't have paid the interest over the last two years, and would be slightly ahead. However, I suspect that you did not do this because it would seem 'uncomfortable' to borrow for a vacation. Therefore, it feels better to say that you saved up for it, so it's okay. I'm not trying to be harsh on you, but this is the way people (in general not just you) think. Really, if a person has any consumer debt, even if they 'save' for another item, they are still just moving funds around.


This. Either you carry your debt a bit longer and go ahead with your trip, or delay your trip and get rid of that debt. It would appear that your financial situation doesn't allow for both right now, and that's OK. Life's not a race...you don't HAVE to go to Disneyland by a certain time, nor do you have to be debt-free by a certain time. Choose what matters more to you right now and accept the consequences that your choice will leave.

IMHO I'd tell my wife to get a job sooner and start contributing more money, as well as taking your vacation savings and pay off that CC debt. Next, obtain an LOC and stop carrying CC balances. Then, maybe 6 months, maybe a year later, take that well-deserved trip to Disneyland. Memories will still be made, you're not sacrificing anything with this option.


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