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Ask The Trustee: Get Expert Advice on RRSP, TFSA and Student Loan Debt

Our Experts Answer Your Money Questions

Most of us have questions about money. Where we run into trouble is when we realize that talking about money with others is often considered impolite and can make for an uncomfortable discussion. This can mean many questions we have are left unanswered. But as the saying goes: “knowledge is power” and the more information we have about money, debt, budgeting, and finances, the better choices we can make. The result? A greater likelihood we will end up with a substantially better financial situation.

To help you best determine the right financial strategies for your household, every month our experts answer questions about money and debt. If you have a question for our team, please feel free to submit it online on Facebook, or through our website.

Please be aware: The questions here may have been edited or shortened for simplicity.

Where should I place my money: TFSA or RRSP?

TFSA or RRSP? where to put your money is truly dependent on your financial situation. Here are some general guidelines you can follow to better help you decide whether to put your money in a TFSA (Tax-Free Savings Account) or in a RRSP (Registered Retirement Savings Plan).

It may be a better idea to put your money into a TFSA if:

  • You have a pension plan with your employer or other retirement plan and need to earn a high income in retirement. Paying taxes on an RRSP are deferred (put off until a later time). Once you are retired, you will have to pay taxes on any money you withdraw from your RRSP. If you are earning a high income in retirement, this could mean a higher tax bill later. In this case, it might be better to investigate a TFSA.
  • You might need to pull out your funds earlier than planned to be used for a short-term goal. If you are planning to use some or all the funds before you retire, then a TFSA is the much better option. You do not need to pay income tax every time you make a withdrawal from a TFSA since it is after-tax income.

However, you might want to consider putting your money into an RRSP if:

  • You are currently in a high-income tax bracket. An RRSP lets you put off the taxes you need to pay until you are retired and expected to earn less money each year (lower tax bracket).
  • You do not have a pension plan with your workplace. If your employer does not offer a pension plan, then you might want to consider investing in an RRSP of your own with a financial institution of your choice.
  • You want to “force” yourself to put money aside for retirement. Saving for retirement is not always on our minds, especially when we are younger. Knowing that you will have to pay taxes on any funds you withdraw from a RRSP will mean that the money will stay in the account, until you need the funds once you retire.

Of course, if your finances allow for it, the optimal situation is to contribute (when possible) to both a TFSA and a RRSP.

I am having trouble paying off my student loans. What are my options?

Many students leave school with a sizable amount of debt. This can make it tough to juggle monthly loan repayment and other bills, even with a full-time job. If you are having trouble repaying your student loans, there are several options available.

Some graduates consider debt consolidation to deal with student loan repayment. This process can be helpful if your debt consolidation loan gives you a lower interest rate than what you are currently paying on your student loan debt. However, depending on your situation, it might not be possible to qualify for a debt consolidation loan with a lower interest rate.

Filing for bankruptcy or filing a consumer proposal are two other options. The federal Bankruptcy & Insolvency Act (known as the BIA) legislation states that for your student loan debt to be included in a bankruptcy or consumer proposal, the debt needs to be more than 7 years old from your last day of study. This means you must be out of school for a minimum of 7 years. Leaving school and then returning to complete a degree or certificate resets the 7-year clock.

If you have not been out of school for a full 7 years, you can apply for relief from your student loan debt after 5 years under what is known as the “hardship provision”. For this application to be successful, you must prove you have made a reasonable effort to repay your student loan debt over time and will also need to prove that continuing to pay your student loans will cause you undue financial hardship. Even if this application is accepted, it will only reduce the period from 7 years to 5 years.

Another available option to explore is the Government of Canada’s RAP (Repayment Assistance Plan). Under this plan, you may have your monthly student loan payments reduced, depending on your family income. You must apply for this plan and then re-apply every 6 months. Further information on whether you can qualify for the RAP is available online.

If you have debt with other creditors and the debt burden is making it difficult for you to repay your student loans, a consumer proposal or bankruptcy filing could be beneficial: Your overall debt load will be dramatically reduced, and funds freed up for you to pay down the student loans as a result.

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