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A few years of a combination of under-employment and trying to keep afloat a floundering business has left me (us) with 50k debt on a line of credit and a credit card. We are getting 5k back from income tax but that still leaves us with 45k of debt.

At last I am now back working full-time with a decent salary, but we are left saddled with this debt. Do we pay off the debt with our RRSPs (I am aware of the tax implications of this) and start from scratch, do we refinance our mortgage and roll it into that – where it takes us longer to pay it off but at a lower interest level but leaves us enough each month to actually start saving?

Obviously we are capping our credit products and eliminating the possibility for this to happen again. Just really want to know our best option for a fresh start.

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    Does the employer offer any match into the RRSP similar to the US 401(k)?
    – JTP - Apologise to Monica ♦
    May 7, 2013 at 14:23
  • No. I think the new one does, but that's not set up yet.
    – Financial Idiot
    May 7, 2013 at 14:57

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I would personally look at consolidating your debt at a lower interest rate by refinancing your mortgage. I would leave any retirement funds alone unless it was absolutely necessary to touch it with no other avenues available.

However, once you have consolidated your debt into the mortgage I would pay more than the minimum amount so that you don't take too long to pay it off. I would put about 50% of the freed-up cash flow back into the repayments, that way you will be paying more debt off quicker and you will have additional cash flow to help your monthly budget.

Another good point would be to go through your monthly budget to see if there is any expenses you could reduce or eliminate.

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    +1 As I started to write (an answer as well), I saw Victor's answer pop up. Refinancing to pay one's credit cards is not popular advice. "You are turning short term debt into long term debt secured by your house." Right, but our advice is to do this instead of trashing your retirement savings. Rates are low enough that that the $50K is $238/mo for 30 years. I agree that you should pay more toward the mortgage to reduce it to where you started as fast as you can.
    – JTP - Apologise to Monica ♦
    May 8, 2013 at 0:11
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    @JoeTaxpayer Mostly agree; but it should be noted that the OP is in Canada, where a 30-year fixed-rate mortgage doesn't exist. Terms and rates here will differ, though rates are also low, historically speaking.
    – Chris W. Rea
    May 8, 2013 at 0:21
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    @ChrisW.Rea - same here in Australia, the longest period for fixed rates are 10 years, most go for the variable rates or short period fixed rates of between 1 to 3 years. But still this would be better than paying a higher interest rate on other debt (as long as you don't just continue paying the minimum amount on the mortgage).
    – Victor
    May 8, 2013 at 0:29
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    Thank you for this. Feeling more positive about our financial future.
    – Financial Idiot
    May 8, 2013 at 1:02

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