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Have it all: Pay down debt AND save for the future

One of the biggest challenges many young adults face when they are starting out in the workforce is balancing the need to pay down debt while saving money.

“There are two ways to improve your personal balance sheet - either save more or pay down debt,” says Carrie Russell, Senior Vice President, TD Canada Trust. “Speak with an expert at your local bank who can advise you on how to pay off debt, save for the future and still live your life. It is all about taking charge and setting priorities for your next dollar of discretionary income.”

Russell offers two examples of when to consider saving and when to consider paying off debt:

Regularly contribute to an RSP while paying down debt .
When you’re in your mid-twenties and earning $30,000 a year, the last thing on your mind is retirement - especially if you have credit cards, student loans or other debt to pay off. Paying down debt is important, but saving a little when you are young can make a big difference. For example, if you invest $100 a month in an RRSP starting at age 25, you can grow your savings to more than $200,000 by the time you turn 65. Because you are only investing a little each month, you can still pay off some of the money you owe. And, with the tax savings from your RRSP contribution, you will be able to apply your tax refund to your debt to pay it down further.

Contribute to a TFSA (Tax-Free Savings Account) versus paying down debt
A TFSA is a good choice for short-term savings goals like a vacation or a new car because the interest earned from savings and investments is tax-free. Contributing to a TFSA gives you the flexibility to readily access your cash and can be a great emergency fund. However, if you are also paying down debt, you need to look at how much interest you are earning on your investments inside your TFSA. If it is less than the interest on a loan, it may make sense to pay down debt first and save in a TFSA later. For example if you are paying 8% interest on a loan, you would need to earn 8% on your investments inside your TFSA to break even.

To find out more about how you can save for the future, visit