The Big Picture - it comes together for Kat
In the end, a number of changes happened over several weeks so that plan got re-worked entirely. I did ease my financial situation and create breathing space for myself, however, I was able to do that using only a portion of my RRSPs rather than paying off my whole debt entirely from RRSPs.
I decided to split the debt load by redeeming half the total in RRSPs in Dec/06, intending to redeem the other half in Jan/07. This was because I wanted to split the tax burden across 2 taxation years, otherwise I would’ve had all that “income” added to my 2006 earnings and would have paid more tax in the end. I redeemed the 1 st half in December as planned & applied it to my debt.
Over the Christmas/New Year break, it became apparent to me that my partner and I were conceivably going to begin living together in the coming months. Add to that the knowledge by the end of March my next contract was coming up for renewal with the possibility for a salary increase (basic cost of living) and the potential for some contract work was floating around out there too. When I speculated on all of this I realized that these things were all significant enough changes that I might not need to redeem my RRSPs to pay off the 2 nd half of my debt load.
I decided I would wait for a few weeks to see how all of it panned out before I made any decisions. Simply lowering my debt by half had already created some much needed breathing room. I decided I would use one of Nancy’s suggestions to withdraw the amount of my minimum debt payment out of my RRSPs each month, rather than all in one chunk, giving me freed up cashflow in my bank account and letting my RRSPs work for me as they continued to earn interest until I needed to withdraw them. That meant if anything improved through the year, I might not end up taking all the money from my RRSPs.
As it turned out, an improvement in the position at my full-time job, together with some increases in pay and other benefits on my contract were more than I anticipated, then my partner and I did end up moving in together (thereby greatly diminishing my monthly living expenses for things like rent, utilities, etc that we now share) and additionally, I got an unexpected outside contract that allowed me to earn extra unexpected income (my last blog entry). This all amounted to a substantial improvement in my financial situation that should have me out of debt before the end of this year without having to use any further RRSP monies. HALLELUJAH!!!!
From an investment standpoint it was not ideal to redeem the RRSPs, although the psychological payoff has been HUGE. The amount on the statement for my line of credit (my one & only debt) is quite manageable when I look at it now. Plus, watching it diminish as I make monthly payments triple or quadruple the size of what I was previously able to manage before all of this change happened, is VERY rewarding. I’ve also quadrupled the amount of savings I was setting aside and contributing to an investment club as well - also in amounts higher than anticipated.
So as I said in an earlier blog, “Shift Happens” and thanks heavens for that, what a total morale booster!
