Using RRSPs to Pay Off Debt
Multiple households consider liquidating their investments, things like an RRSP or RRIF fund, in order to pay off your debts and manage their finances.
Despite appearing like a good direction, there are many reasons why this will not serve you in the long run.
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- Your retirement savings held in a RRIF or RRSP are safe from taxes. The funds in an RRSP had no taxes taken when the money was invested. That means that anything you pull from the fund counts as income and is eligible for taxation. It can result in an undesirable tax bill.
- If you pull money from these regulated accounts it is also eligible for an additional taxation referred to as withholding tax. This means you won’t have access to the full amount; so, when it comes to paying off your debt, you have less to work with.
- It slows down your retirement savings by setting you back financially. You saved for retirement for a reason, and will have to start from scratch to restore the funds you used towards debt.
Suitable Alternatives
The best thing you can do is reach out for expert advice.
Consult with a Licensed Insolvency Trustee and detail your circumstances.
They can guide you through all the options so that you can find a suitable arrangement.
Since RRSP funds cannot be taken in a bankruptcy, it is usually better to find a different route to debt management.
Usually, it falls to either a bankruptcy filing or a consumer proposal.
The latter enables you to retain your assets, particularly investments, while also freeing yourself from debt.
Only amounts contributed to your RRSP within the preceding year are eligible for payment funds in situations of bankruptcy or consumer proposals.
Debt elimination via bankruptcy or proposals can actually enable you to restore your credit in the long term.
They can open up financial opportunities in your future which would otherwise be unavailable if you liquidate RRSPs or RRIFs to pay off your debt.
If you want to rid yourself of debt, you need to think about the big picture.
In finances, quick solutions usually only mask an underlying concern.
Get Professional Assistance
Every situation is unique.
The best way to find your footing through financial hardship is to obtain help from a certified professional.
Speak to a Licensed Insolvency Trustee in your region.
As trained and certified financial professionals, they have the knowledge and familiarity with all the choices available.
These professionals are authorized to take the necessary actions to help you restore your fiscal wellbeing.
In fact, only a Licensed Insolvency Trustee is eligible to go through the legal motions required to issue either a consumer proposal or to file for bankruptcy.
The meetings are entirely confidential, come at no cost, and pose no obligation.
There is nothing to lose and everything to gain; so, instead of liquidating your retirement savings, consider your alternatives through reliable, professional guidance.
Information on Consumer Proposals
Consumer Proposals in Canada – An Alternative to Bankruptcy
What is a Consumer Proposal?
How to Amend a Consumer Proposal
What are the Benefits of a Consumer Proposal?
What are the Steps in a Proposal?
Consumer Proposal Eligibility
What Debts Are Erased in a Consumer Proposal?
Is There Life After a Proposal?
Canadian Bankruptcies
How to File for Bankruptcy
What is Bankruptcy?
Bankruptcy FAQs
How Does Bankruptcy Work?
What is the Cost of Bankruptcy in Canada?
How to Rebuild Credit Following Bankruptcy
Personal Bankruptcy in Canada
What Debts are Erased in Bankruptcy?
