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I recently bought a car. A portion of that amount ($10k-ish) is financed at about 7% on a line of credit.
Currently I pay about $500/month for a pension buy-back for a period that I was a student. I have about 15 months left. I could, however, eliminate that payment by transferring the total amount owing ($7500ish) from an existing RRSP. And then apply that same $500/month to accelerate my LOC payments.
My internal analysis is that my RRSP would need to be consistently beating the 7% interest rate on my car LoC to justify keeping it in the RRSP. Obviously I can't predict the future so given the economic climate, I'm inclined to guarantee myself the 7-ish% return and accelerate payments on the car LoC by paying off the pension but-back from the RRSP.
The only drawback that I can see is that I'll have saved less money ultimately for retirement. But if I commit to continue some additional savings once the car loan is paid off, I can mitigate that.
Am I missing anything I should be considering?
Keep in mind you will get a contribution receipt for cash contributions. So you have to factor that in.
Getting rid of debt is always a good idea. With what looks to be an imminent down turn in the markets using your RRSP money could be the safe bet.
However, There is no “right” answer. Also we cannot predict the markets. It really comes down to your confidence in the markets I think. 7% over the next year or so be difficult IMO.
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The contributions you make during the year are deductible against your income similar to an RRSP contribution.