University graduates typically leave school nowadays with a degree and some debt (which is often in the form of student loans). Although retirement may be a long time away, the question of whether to start an RRSP or focus on paying down one’s student loan is an important one.

“I think it’s not an either or, it’s an and (situation),” says Patricia Lovett-Reid, the senior vice president for TD Waterhouse Canada.

With the role compound interest and time play in building up an RRSP, it is ideal to start one sooner rather than later, while at the same time paying off debt.


However, if a person’s financial situation doesn’t allow for it, the focus must be on paying down debt.

To make the decision, it’s crucial to do the math.

“How much does it cost you to have borrowed the money versus if you invest it with time and compound interest working for you? How much further ahead will you be?” says Lovett-Reid.

For someone with credit card debt, this is a no-brainer because credit cards typically have interest rates of 18 per cent or higher.

“If you’re only getting six to eight per cent on your investments, it’s a pretty easy decision,” she says.

“You’re going to apply any extra money you have to the highest paying debt because you want to retire that sooner.”

Lovett-Reid recommends people speak with a financial planner to figure out the numbers and determine what’s best for their individual circumstances.

The amount of risk a person is comfortable with will also help determine what they do, says Ryan Churchill, a financial planner with BMO in Halifax.

For someone who is risk averse, he says they’re probably going to focus on paying down their student loans because they’re not going to achieve a significant rate of return on a guaranteed investment certificate (GIC).

But he cautions if people wait until they’re debt free to save, they probably won’t.

“Most people always have debt,” says Churchill. “If you wait to pay off the debt before you save, you’ll never save.”

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