Paying down debt, contributing to an RRSP, and funding a TFSA are all responsible choices — but they aren't equally powerful for every situation. A simple framework helps you direct each dollar where it does the most.
Start with high-interest debt
High-interest debt — credit cards and some personal lines of credit — almost always wins mathematically. Paying it down delivers a guaranteed, tax-free return equal to the interest rate, which is hard to beat with any investment.
RRSP — best in your highest-income years
An RRSP deduction reduces your taxable income today, so it is most valuable when you are in a high bracket and expect a lower income in retirement. The growth inside the plan is tax-deferred until withdrawal, when it is taxed as ordinary income.
TFSA — flexible and tax-free
A TFSA doesn't reduce your taxable income, but all growth and withdrawals are tax-free. It is ideal for shorter-term goals, for an emergency fund, and for lower-income earners who gain little from a deduction today.
The framework
Clear high-interest debt first. Then, if you're in a high bracket, lean toward the RRSP; if flexibility or a lower income applies, lean toward the TFSA. You don't have to pick one forever — the right mix shifts as your income and goals change.