Using RRSPs to Pay Down Debt
Dealing with debt can be very stressful and people often resort to cashing in their RRSPs or other investments to pay down or pay off debt.
Before you cash in your savings you should consider the following:
The time value of money – RRSPs are meant to help provide income for you during your retirement. Every dollar you deposit today accumulates interest. A dollar that you withdraw today could equal several dollars by the time you retire.
Tax implications – the money that you get from your RRSP is considered taxable income for the year it is withdrawn and sufficient taxes should be withheld. Not having enough taxes withheld could leave you with a large income tax bill the following year.
If you are unable to keep up with your debt payments you should consult a Licensed Insolvency Trustee to discuss your options before cashing-in any of your investments. Your investment savings may be exempt from seizure so you may be able to keep them if you file for personal bankruptcy or settle your debts through a consumer proposal.
If you have already withdrawn your RRSPs and are still struggling with debt a licensed trustee can help with those debts and any income taxes you might owe as a result of cashing-in your investments.
Powell Associates Ltd. is a Licensed Insolvency Trustee (LIT) focused on providing debt settlement, proposal and bankruptcy solutions for individuals and businesses. We offer free consultations to review your personal financial situation and practical debt resolution options. Contact us to discuss your situation over the phone or book an appointment to meet us face-to-face in Saint John, Moncton, Fredericton, Charlottetown or Dartmouth - it's your choice.