Author Topic: Case Study: Pay car loan or contribute to RRSP?  (Read 1260 times)

ashfo

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  • Location: Northern Ontario
Case Study: Pay car loan or contribute to RRSP?
« on: February 12, 2014, 02:01:21 PM »
I get paid $1552.92 bi-weekly.  I base my monthly budget off of a two-pay month and in the two three-pay months I use the excess after my bi-weekly payments to put a lump sum on my debt.

Monthly Income: $3105.84

Current Expenses:
Rent: 830
Hydro: $125 (Electric heat - this was last years average, my Jan. hydro bill was $115 so avg will be lower this year, just not sure yet)
Car loan: $310 (155 bi-weekly)
Car Insurance: $127 (need comp for loan, this is lowest I could find)
Car Maintenance: $50
Additional Car Payment: $400 ($200 bi-weekly)
Parental Loan: $100 ($50 bi-weekly)
Emergency Fund: $250 ($125 bi-weekly)
Internet: $51
Cell: $62 (contract until Sept. 1, will change then, cancellation fee too high to change now)
Netflix: $8
Groceries: $200
Eating out: $70
Bars: $75
Miscellaneous:$447 (includes travel, clothes, sports team registrations, some work certifications coming up)

Assets:
Emergency Fund - TFSA: $1312 (currently at 1.15% but in process of changing to People's Trust at 3.0% high interest TFSA)
Workplace RRSP: #3268.55 (7% of my gross salary is contributed by my employer, whether I contribute or not)
2010 Honda Fit: $12,000

Liabilities:
Car Loan: $6745.45 @ 4.99%
Parental Loan: $20,865.88 @ 3.5% (parents paid of student line of credit before interest went up to 6.85%)
Two credit cards that I pay the full balance on each month.

Question:
Should I continue to put the $400 extra toward my car or should I open a TD e-series RRSP and make $200 biweekly contributions to that instead?

I did some calculations and if I pay off my car in August as planned I will pay about $85 less in interest than if I pay  it off at the end of January.  If I put $200 bi-weekly toward my RRSP then I will have contributed $4200 plus the $3800 from my employer, so I should get a pretty decent tax refund next year (more than $85).  Since I will be keeping my comprehensive insurance until I next year anyway as my emergency fund isn't funded enough for a car replacement yet, I think this may be the way to go.  Or should I just pay off the car?