Picking priorities: Debt repayment vs. saving
When to live with debt and when not to
Does it make sense for a young person to have life insurance?
Think you're too young for life insurance? Buying early can help save on premiums.
Canadians are more likely to prioritize debt repayment over saving for long-term goals, a new Edward Jones commissioned survey has found.
When receiving money in a lump sum like a tax return, poll results show that nearly one-in-three Canadians planned to use this to pay down debt, while fewer than one-in-10 planned to use that money to save for retirement.
Prudent rationale, right? Not necessarily. Believe it or not, there are times when it actually makes sense to put off debt in favour of saving. This chart can help you decide whether to pay down debt or invest for the future. As always, be sure to check with a financial planner to make sure you’re following the path that’s best for you.
| Scenario | Pay down debt | Save for the future |
|---|---|---|
| You graduated with student debt less than 6 months ago | ✓ Although interest does accumulate during this period, you don't have to make payments on your debt for the first 6 months after graduation. Save your money while you search for a job. You may need to relocate or buy a car to get to work | |
| You graduated more than 6 months ago and do not qualify for student loan forgiveness | ✓ Work multiple part-time jobs if you have to but definately start chipping away at this debt as it will grow over time | |
| You have an outstanding balance on your credit card | ✓ Guaranteed double-digit returns don't exist so you're better off paying off your credit card balance | |
| You have a car loan | ✓ It almost never pays to have a lean on depreciating asset | |
| You have low, fixed rate mortgage | ✓ If you have a reasonable size mortgage and can stomach it, pay only the minimum on your mortgage and invest the rest in a balanced portfolio. If you have a half-million dollar mortgage however, it may be wise to accelerate payments at least a little bit as rates will invariably rise | |
| You want to be mortgage-free in 10 years time | ✓ If your strategy is to pay down debt and then get serious about saving later in life, max out your mortgage pre-payment option every year | |
| You have a line of credit | ✓ These are best suited for emergency situations so it's best to pay them off fast | |
| You have an RRSP loan | ✓ Remember that juicy tax refund you got as a direct result of your taking out an RRSP loan? Time to make good on your promise and repay the loan |
Visit MoneySenseWeek.ca for more great money tips »
Share this article Share on Facebook Share on Twitter Share on Linkedin Share on Reddit Share on Email
Related Articles
GST holiday break: Is it good for Canada’s economy?
Economists share how the temporary tax cut and relief cheques may play into Canada’s growth picture.
Money-saving gifts that keep on giving: MoneySense’s 2024 holiday guide
Looking for gifts with great value? Our editors share ideas that are thoughtful, useful and even cozy—plus they can...
Making sense of the markets this week: November 24, 2024
Nvidia doubles revenue in one year, Canadian inflation moves in the wrong direction, Target misses badly, Walmart beats earnings...
MoneySense at the MoneyShow: ETFs & Investing Strategies
Here’s how to get your free ticket to attend the MoneyShow virtual expo.
5 must-have insurance coverages for small businesses in Canada
Created By
Zensurance
Mental health resources in Canada: How to get help for free (or cheap)
Learn how to get mental health support in Canada, whether or not you have workplace benefits or insurance coverage.
Inflation is on target in Canada, so why is food (and other stuff) still so expensive?
Why Canadians are still feeling the squeeze of high food costs, and what to do about it.
