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Should I Pay Down Debt or Invest? 

If you have some extra cash and you’re thinking about investing some of it but are also carrying debt, here are some things to consider helping you think about what to do.


Consider investing for your long-term goals


If you have extra cash and your debt load is low, one possible investment to consider is putting your money in an RRSP.

RRSPs (Registered Retirement Savings Plans) are designed for retirement planning.

If you don't already have an RRSP and are thinking about opening an RRSP account, it’s a good idea to speak to someone with financial knowledge, like a TD advisor, to help decide if this option is right for you.

Paying Down Debt

Now, maybe you’re looking to use some of your extra cash to help pay down some of your debt. If this sounds like you, here are some things to consider:

  • Avalanche method : A general strategy to pay down debt is to start with debt that has the highest interest rate. This is known as the Avalanche Method. With this method, once the debt with the highest interest rate is paid off, the focus is then on paying down the debt with the second highest interest rate, and so on.
  • Debt consolidation : Debt consolidation means taking all of your existing debts like credit card bills and any loan payments – and consolidating them into one loan with a single monthly payment. This is a way to help simplify payments and possibly lower the overall interest rate that applies to your existing debt.

Try the TD Debt Consolidation Calculator to quickly calculate.

Consider saving for unexpected expenses


Another possibility for your extra cash is to consider opening an account, separate from your other savings account, as an emergency fund for unexpected expenses.

Having money set aside specifically for unexpected expenses could help carry you through difficult financial times.

In terms of how much to put into your emergency fund, a general guideline is to set aside three to six months’ worth of expenses.

Everyone’s financial situation is different


At the end of the day, everyone’s financial situation and their personal feelings toward saving and debt management are different. So, whether you’re looking to pay down debt or save for the future — or both — the choice you make should be based on your specific financial situation.

If you’d like some advice about whether to pay down debt or save for the future, book an appointment with a TD advisor who can help you review your options.

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  • Learning how to manage your debt is key to paying it off. See our tips to manage debt.

  • Looking to start investing? Learn more and find out different ways you can grow your money.

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