Dumping my TFSA for debt repayment, pros and cons!
Last week I announced a debt milestone and asked a serious question, about whether or not I should dump some of my TFSA to make my debt repayment finish faster. I think one of the pieces that was missing from this equation was the fact that my TFSA kiiinda acts as my emergency fund.
Currently I’m rocking just over three months of basic living expenses which includes rent, bills, transit, food. Keep in mind this is basic, it doesn’t include entertainment, or clothing or fun stuff. The question about emergency funds comes up time and again on my blog and others, and while I’m in favour of keeping it, I also realize that at this point it’s a bit bigger than I need and that the benefits of holding it high are outweighed by the (ever-so-slight) difference in the interest rate on my loan and getting this debt licked once and for all.
So I took my question out to the internet, and here are some of my answers:
Why I Should Pay if Off
– The amount of interest I’m gaining each month from the TFSA is less than the interest I pay on the current loan amount
– I can withdraw it in 2013 and then just recontribute the difference in 2014
– It will get a big morale boost to see my numbers go down, and might positively impact my mood (Achievement factor!)
– I can move on with my financial goals once this is behind me
Why I Shouldn’t
– While I have a savings account (and a vacation fund) this is my “emergency fund” per-se
– Even though it’s a larger fund than I possibly need, it may also need to be utilized in the next few months as a “first and last” fund for an apartment. If we do find a magic-pixie-unicorn place, I want to be able to act immediately!
– I can claim the student loan interest that I’ve paid on my loan, on my taxes, as little as it is
– I worry that I will go a little “spend crazy” and instead of building my fund back up once I’m debt-free I worry that I won’t be as prudent as I want to be
– Use the money from my TFSA to contribute to my RRSP, thus creating a larger tax return for myself which I can then put towards my debt repayment
(And yes Mark, don’t worry, that credit card is paid off again!)
So, despite the cons column being larger than pros, I’ve decided that I’m going to do it!. I just need to figure out how aggressive I’m going to be. Should I leave 3 months of basic rent? Rent + food? I’m going to figure this out, but by the next time I post, I should be even closer to my goal.