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9897 34 Ave NW
Edmonton, Alberta
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Phone: (780) 424-3434

Make 2015 The Year You Refund Your Debt

If you, like many in Edmonton, are expecting a tax refund this year, you are probably weighing your options. Maybe you want to use the money received to pay down your debt or possibly contribute to your RRSP. If you aren’t sure which option is best for you at the present time, you are certainly not in the minority. Choosing between using a tax refund for debt repayment or retirement savings is a common dilemma for Canadians.

Use your tax refund to “refund” your debt

As personal debt in Canada continues to reach record high levels, a tax refund provides a good opportunity for dealing with this challenge. The average Canadian is concerned about their financial situation. In fact, according to a recent CIBC poll, paying down debt is the number one priority for a growing number of Canadians for the fifth year in a row.  Adding to our concerns is the uncertainty about where interest rates are heading. Although we are currently experiencing low interest rates, some analysts are predicting a rise in interest rates by the end of 2015.

If you are expecting a tax refund this year, how would an interest rate increase affect your decision to pay down debt or save for your future? Consider your current financial status, including your assets, income, expenses, debts and the types of debt you carry, and the interest rates and term associated with each of your debts. If you are stressed about your current financial situation now, think about what an increase – even a slight increase – would do. If an increase in interest rates would cause you to become overwhelmed by your debt, focus your income tax refund on paying it down.

Strategies for debt relief

It may be simple to say “pay down your debt”, but which debt should you focus on first?  Take stock of what you owe. If you carry high interest debts, such as a large credit card balance or a bank loan, you may want to utilize your tax refund to pay down one or more of these debts. This will allow you to save on future interest charges.

Is paying down your mortgage is your top priority? Use all or part of your tax refund to make a payment towards your principal. If you carry a hybrid or variable mortgage, you will be taking advantage of the current low interest rates, paying more towards the principal of the loan and protecting yourself against the effects of a rise in interest rates.

Do you have consolidated your debt, such as a home equity line of credit or consumer proposal? Making a lump sum payment on these type of debt consolidation options will shorten the term of the repayment program and minimize future interest charges.

If you aren’t sure which strategy you will benefit from, seek professional advice. A credit counselling service or a Trustee in Bankruptcy can review your financial status, explain your debt relief options and provide you with debt help if necessary.



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