Which Is Better?

Save or pay off debt: which is better? There’s no single right or wrong answer. Ask a financial planner and you’ll hear, “It depends on your circumstances, goals and life changes.” We are forced to make many difficult decisions over the course of a lifetime. One of them, is the decision to pay down debt or to increase our savings.

Having a solid financial plan makes this predicament a bit easier to resolve. Often, once personal goals are established and prioritized and some analysis is done on tracking spending, studying cash flow and reviewing a net worth statement, the most suitable decision reveals itself. However, it helps to know three other critical pieces of information:

1. Your current tax rate (and if you expect to be taxed at a higher or lower rate in the future).
2. The rates of interest on all your debts.
3. The pros, cons and differences between RRSPs, TFSAs and non-registered investments.

With this information, you will be well prepared to evaluate the crucial considerations involved in this age-old dilemma of prioritizing debt repayment or building up savings.