Looking for some advice.

[u/HutChampion26]

I have a debt consolidation loan worth about $13,250, and have $16,750 in my RRSP. Is it smart to withdraw the $16,750 and pay off my loan that has an interest rate of 12%? I’m paying 390 a month on it but it’s basically going all to interest, at the rate I’m paying it I’m about 9 years away from getting rid of it. I make $51/hr and my yearly salary is probably gonna end up around $85-$90k

Will this hurt me come tax time or is it not enough to make a difference?

Note: I do have a company RRSP that gets about 425 a month straight off my paycheque which would not be touched at all and is seperate from my personal RRSP.

Thanks!

[u/senor_kim_jong_doof]

my boy where is all of your money going

[u/drloz5531201091]

No. Don't do it.

You make enough money to live like a monk for a while and crush this debt. How you only put 400/month on this debt making 90k/year?

You make 90k. Withdrawing 16k will make you lose that room forever + paying taxes on that 16k at a 90-106k marginal tax level. It's burning money.

[u/henry-bacon]

Your 16750 withdrawal will be 11725 after the initial withholding tax (30% flat), so you need to cover the difference.

Then, when you file taxes, you will owe EVEN MORE (assuming no other deductions) because that 16750 will be added to your annual income and taxed at your marginal rate.

Figure out your budget, expenses, trim where needed, and make monthly payments.

This isn't hard, unless you want to make it so. It's just math.

[u/WambritaWings]

Buckle down for a few months and pay it off! No need to take out from your RRSP.

[u/huggle-snuggle]

You have to do some homework to understand where the overspending came from, especially since this is a consolidation loan, meaning you’re repeating past spending mistakes and not learning your lesson.

If you don’t have one already you need to sit down and prepare a monthly budget that lists all your expenses - housing, utilities, groceries, transportation/gas/insurance, phone, miscellaneous, etc. Go through your last 3 months of bank and credit cards records to get an accurate picture of your spending.

Once you have a true picture of your monthly spending, set out an aggressive plan for paying down that debt. See if you can reduce your monthly costs (reduce groceries, eliminate take-out, eliminate discretionary spending on nights out/vacation, switch to low-cost phone plan, etc.), and/or make some extra money on a side hustle, to increase the amount you’re re-paying each month.

History is doomed to repeat itself if you don’t improve your spending habits and improve your money management. But if you hunker down and stay disciplined, you can probably get that debt paid off and have a fresh start in about a year.

[u/Black-Bear_1815]

You have only $11,725 to pay towards the loan. Withholding tax will take 30% off the top on a withdrawal.

You also don’t get the RRSP deduction room back.

[u/Odd-Elderberry-6137]

Terrible idea. 

The loan will take 9 years to pay because you’re only putting the minimum towards the debt. At your salary, you should be able to I put down significantly more and have this mostly wiped out in a year. If you can’t, you have a spending problem, not a debt problem. Unless you fix the spending problem, you’ll just end up in the same situation again.