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Hi Marty. You are in good financial shape compared to many Canadians with credit card debt balances. The key to your decision is what rate of return you expect to get on your RRSP versus your mortgage rate. Many people don't know how well their RRSP has done and therefore can't make a good prediction of what it will do in the future. I tend to go with the pay off the mortgage option since it is a guaranteed rate of return. It also depends on your age - if you are in good shape to pay off the mortgage by retirement and have been doing quite well in your RRSP then continuing with the RRSP sounds fine.

Hi gmac. With the RRSP Home Buyers' Plan you are required to pay back the amount you took out (after a one year holiday) over the next 15 years. If you make any RRSP contribution the amount up to the 1/15th will be deemed a payback of the RRSP HBP. If you don't make a contribution CRA will add the 1/15th to your taxable income so you will essentially be paying back the tax refund you originally got on the RRSP contribution.

Emman. I don't think so. The rate on your credit card debt is probably 10%+ I am guessing. It is very difficult these days to make a rate of return anywhere near that on any kind of investment consistently. Remember, the absence of a cash outflow is as good as a cash inflow especially if the cash inflow is taxed. In other words if the interest in your credit card at 10% is $1,000 you'd need more than $1,000 in income to be left with the same money after-tax. Personally I would focus on the credit card and then the student loans before RRSPs.

What do you think about withdrawing $30,000 from my RRSP to pay off credit card debt costing 20% interest. My marginal tax rate is high at about 40% so I understand this will cost lots in tax. However, at 65, I want to just get rid of this debt. Not able to get consolidation loan either and I am still working at about 50k / year and plan to contribute for a a few more years. Your comments?

Please note that not all credit cards charge are 10-20%. I was just approved for the MBNA Platinum Plus Mastercard which offers 0% for 10 months. Doesn't it make sense to transfer debt on a card like this, contribute to the RRSP, get a big tax refund and then repay part of the debt?

Good point Ian. I think that is one reason why the financial institutions make offers like this that will cost them money in the short term. They know that people have a tough time changing their habits and are unlikely in a position to pay off the credit card after the low-rate term expires. And then they are the financial institution earnings 10-20%

Hi Dan. That's a really hard question and depends on the circumstances. My gut feeling is that the 20% CESG is too good to ignore so I would tend to favour the RESP. The RESP rules are also better now wrt flexibility in withdrawals if the student doesn't go to a University. There is also the benefit of the tax on earnings and grant portion being in the student's hands usually at a low rate or even zero upon withdrawal.

Hi David, how about the tax return on RRSP? Let's say I have $10,000, if I buy RRSP, I get 2,000 tax return. If I use the amount to pay my mortgage, I won't get that much savings on interest, will I?

Hi Dan. You don't say what your incomes are which is key, but it would seem since you have no high interest consumer debt and are probably on schedule to pay off the mortgage, that RRSP or RESP contributions make sense. If you are in the top income bracket that would favour the RRSP route. I would also consider using some of your savings to contribute to a TFSA to shelter any income earned and to use it to top up the RESPs. One last point - if you do pay off the mortgage ahead of retirement, resist the urge to upgrade to a bigger house and get back into a big mortgage as a result!