Personal Finance

RRSP Loan advice

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  • Dec 23rd, 2015 10:16 am
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Jr. Member
Dec 20, 2015
130 posts
34 upvotes
Toronto, Ontario

RRSP Loan advice

Hi All,

When i went to taxtips.ca calculators and entered all the numbers i owe around 3600$ tax. I need to contribute 8k in RRSP to not pay that.
I have 3k emergency fund, i can use it. Was wondering is it a good idea to take 5k RRSP loan in Feb 2016 and contribute, so that i can defer my taxes.

Back ground Info:
I am working two jobs, make mid 80's ( Full time mid 70's, Part time varies min 7k max 10k) a year. I also participate in my company pension plan ( paying roughly 6% of my salary,company matches 3%, Immediate vesting). I am paying off $541 to loans and 1100$ to credit cards each month to pay off debts faster.
Debts:
MBNA - $18000 (19% , Min Payment 500$, I pay 1100$ at least).
TD Personal Loan - $13,900 ( 11%,476$ monthly).
OSAP - $1000 ( 5.5% , 65$ monthly).
Expenses:
Rent + Utilities : $1100 . Travel - $80 . Food : $400 (for two people). Cell Phones and Internet : $170. Entertainment: $30;Life Insurance: $125;Misc : $100.
Assets:
RRSP : $11k ; RPP : $13k; Savings Emergency fund: $3k.
I tried for consolidation loan, got interest rate 17%, didn't feel like taking it. My credit score is between 675 to 700 in both Equifax and Transunion.
22 replies
Deal Fanatic
Nov 24, 2013
6479 posts
3344 upvotes
Kingston, ON
You make Mid 80s... which province? If ON, you might not want to do a large (or as large a) RRSP contribution, because you'll go down in brackets and not get as large a reduction in balance owing. Your RPP contributions reduce your taxable income, which would likely put your marginal rate lower than the 45% you've ballparked for the $8k RRSP contribution (6% of ~$75k is $4,500).

I get that you're thinking outside of the box to avoid dipping into your emergency fund for the tax man, but with an $18,000 19% debt, and then a $13,900 11% debt after that, I wouldn't even think of RRSP contributions at this time. Paying back a $5k RRSP loan is just $5k that you could have been putting towards the 19% debt.
Deal Fanatic
User avatar
Feb 19, 2010
6237 posts
2992 upvotes
IMO, with that much high-interest debt I wouldn't be looking to take on more for an RSP loan which would generally only be advisable to do if you're going to pay it off in the very short term, ideally utilizing a tax refund. You're not planning for a refund. As such, if I were you I'd concentrate on getting that other debt paid off. 19% interest in this environment is a ridiculous interest rate to be paying.
Deal Addict
Aug 19, 2013
2397 posts
1091 upvotes
You have too much debt to do that. You are better off just paying the taxes.
Jr. Member
Dec 20, 2015
130 posts
34 upvotes
Toronto, Ontario
Conquistador wrote: IMO, with that much high-interest debt I wouldn't be looking to take on more for an RSP loan which would generally only be advisable to do if you're going to pay it off in the very short term, ideally utilizing a tax refund. You're not planning for a refund. As such, if I were you I'd concentrate on getting that other debt paid off. 19% interest in this environment is a ridiculous interest rate to be paying.
I will just pay 3600$ taxes. No RRSP loans, I don't want any more stress.
Jr. Member
Dec 20, 2015
130 posts
34 upvotes
Toronto, Ontario
Conquistador wrote: IMO, with that much high-interest debt I wouldn't be looking to take on more for an RSP loan which would generally only be advisable to do if you're going to pay it off in the very short term, ideally utilizing a tax refund. You're not planning for a refund. As such, if I were you I'd concentrate on getting that other debt paid off. 19% interest in this environment is a ridiculous interest rate to be paying.
I am from Nova Scotia. Stupid financial decisions last year , took money on MBNA 0% gave it to cousin as he is in some trouble. He is not paying me back. I am stuck with principal and Interest. I lost faith man.I can't trust any one these days.
Jr. Member
Dec 20, 2015
130 posts
34 upvotes
Toronto, Ontario
Momof3cuties wrote: You have too much debt to do that. You are better off just paying the taxes.
Thanks for reply. Probably i will just pay taxes.
Deal Addict
Apr 4, 2013
1274 posts
410 upvotes
mskbot wrote: Thanks for reply. Probably i will just pay taxes.
Best idea, imo also. You currently have debt that you need to get rid of, and adding another $8000 debt this year doesn't make a lot of sense.

Your biggest challenge right now is making sure that you either ask the tax man to take an extra $300 a month in income tax going forward so you don't run into this problem again next year or you start saving that $300 a month for next tax season.
Deal Fanatic
User avatar
Jan 27, 2007
5116 posts
984 upvotes
T.
Skip rrsp and pay down balance owing then other debt.
[QUOTE]I know you are, but what am I.... ;) [/QUOTE]
Jr. Member
Feb 21, 2015
154 posts
34 upvotes
East York, ON
mskbot wrote: I will just pay 3600$ taxes. No RRSP loans, I don't want any more stress.
I think you can get an RRSP from Tangerine and you can use it for something else. However, instead of 1.9% RRSP loan, you will get charged 9%. 9% is still better than your current 11% and 19% CC.
Deal Fanatic
User avatar
Apr 16, 2006
6241 posts
708 upvotes
Yikes.

Get that debt down before doing anything else.
Jr. Member
Dec 20, 2015
130 posts
34 upvotes
Toronto, Ontario
dutchca wrote: Skip rrsp and pay down balance owing then other debt.
thank you. I will just pay the taxes and the debt.
Deal Fanatic
User avatar
Jun 11, 2001
9475 posts
1610 upvotes
Hmmm, nothing to do with your original question but,

MBNA - $18000 (19% , Min Payment 500$, I pay 1100$ at least).
TD Personal Loan - $13,900 ( 11%,476$ monthly).

Talk to other banks/institutions to see if they can consolidate both of those to get you a much better interest rate.

Sucks about your cousin, I've been burnt a few times from family as well.
...zzz...zzz...zzz...

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Member
User avatar
Sep 25, 2015
222 posts
77 upvotes
Newcastle, ON
I want to hear more about this cousin, what he needed the money for, and what actually happened after you gave him the money. Sounds juicy.

I'm all for helping family members in need, if that's your thing... But I always consider every loan to be a worst-case scenario 'gift', and if i couldn't handle that money being gone forever, I re-evaluate the whole thing.
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Jr. Member
Dec 20, 2015
130 posts
34 upvotes
Toronto, Ontario
sleepyguy wrote: Hmmm, nothing to do with your original question but,

MBNA - $18000 (19% , Min Payment 500$, I pay 1100$ at least).
TD Personal Loan - $13,900 ( 11%,476$ monthly).

Talk to other banks/institutions to see if they can consolidate both of those to get you a much better interest rate.

Sucks about your cousin, I've been burnt a few times from family as well.
TD Agreed to consolidate, But interest rate for both is 15% (I didn't like the rate). I am trying to pay off MBNA as fast as i can. I was hoping my cousin will pay me back soon. If not i will increase my payments a bit more. Once my Credit score is above 700 and pay off another Couple of grand to CC, I will go for consolidation. Now credit score between 675 to 700.
Jr. Member
Dec 20, 2015
130 posts
34 upvotes
Toronto, Ontario
gwcphoto wrote: I want to hear more about this cousin, what he needed the money for, and what actually happened after you gave him the money. Sounds juicy.

I'm all for helping family members in need, if that's your thing... But I always consider every loan to be a worst-case scenario 'gift', and if i couldn't handle that money being gone forever, I re-evaluate the whole thing.
I can't afford to give gifts that cost more than few hundred $. My cousin used to borrow one or two grand and pay me back quickly. Now not sure why he is not paying me back.
Member
User avatar
Sep 25, 2015
222 posts
77 upvotes
Newcastle, ON
mskbot wrote: I can't afford to give gifts that cost more than few hundred $. My cousin used to borrow one or two grand and pay me back quickly. Now not sure why he is not paying me back.
Sounds like the pay-off in a classic long con, haha.
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Deal Addict
Aug 19, 2013
2397 posts
1091 upvotes
mskbot wrote: I can't afford to give gifts that cost more than few hundred $. My cousin used to borrow one or two grand and pay me back quickly. Now not sure why he is not paying me back.
Never lend any money you can't afford to lose. And definitely don't ever borrow money to loan to other people.
Sr. Member
Dec 19, 2010
671 posts
5147 upvotes
Vancouver
mskbot wrote: Hi All,

When i went to taxtips.ca calculators and entered all the numbers i owe around 3600$ tax. I need to contribute 8k in RRSP to not pay that.
I have 3k emergency fund, i can use it. Was wondering is it a good idea to take 5k RRSP loan in Feb 2016 and contribute, so that i can defer my taxes.
Hello reddit user....

Just pay your consumer debt off and increase your monthly RRSP contributions for next year rather than paying back the RRSP loan monthly.
Member
Jun 10, 2010
336 posts
111 upvotes
mskbot wrote: TD Agreed to consolidate, But interest rate for both is 15% (I didn't like the rate). I am trying to pay off MBNA as fast as i can. I was hoping my cousin will pay me back soon. If not i will increase my payments a bit more. Once my Credit score is above 700 and pay off another Couple of grand to CC, I will go for consolidation. Now credit score between 675 to 700.
When you're currently paying 19% interest, why would you turn down 15%? What don't you like about 4% savings? Beggars can't be choosers.

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