You get a $3,000 tax refund. You've got $8,500 sitting on a credit card at 20.99%, a mortgage coming up for renewal, and barely anything in your TFSA. Where does the money go?
The standard rule of thumb is "if your debt is above 6%, pay it off." That rule predates 0% federal student loans, the spread of employer RRSP matching, and current mortgage renewal rates.
The right call is a rate comparison that depends on what kind of debt you're carrying, what accounts you have access to, and a few Canadian-specific factors no spreadsheet captures. Nothing here is financial advice; a licensed financial planner who knows your numbers can give you that.
Start with the Rate Comparison
Paying off debt earns you a guaranteed return equal to the interest rate you're no longer paying. Put $1,000 toward a credit card at 19.99% and you've locked in a 19.99% return: certain, immediate, no market exposure required.
Investing that same $1,000 gets you whatever the market does. The S&P/TSX Composite has returned 7.9% annualized over a 50-year stretch ending in 2021, per Questrade's historical market data. The S&P 500 has averaged closer to 9–10% annually in USD over the long run. These are averages across decades. The next ten years could fall well above or below that line.
At 20% credit card debt versus a 7–9% market, paying off the card produces the higher guaranteed return. The harder calls are in the middle: mortgages, HELOCs, and car loans in the 5–7% range, where the math doesn't produce a clean winner.
What Debt Costs in Canada Right Now
Credit cards: Standard Canadian cards run 19.99%–22.99%. Some retail and store cards charge more. According to NerdWallet Canada, 20% APR is the ballpark for a typical card. Low-interest cards exist in the 9.99–12.99% range. Most balance-carrying customers are on the standard cards.
Car loans: Statistics Canada data from October 2025 put the average new car loan rate at 6.5%. Used vehicles run higher, typically 8–13% depending on credit and lender.
HELOCs: Typically prime plus a lender spread. With the Bank of Canada prime rate sitting at 4.45% as of early 2026, most HELOC borrowers are seeing rates in the 5.5–6.5% range.
Mortgages: Highly variable. Five-year fixed rates ran 4–5.5% through 2024–2025. Variable-rate holders are also tied to prime.
Canada Student Loans: as of April 1, 2023, the federal government permanently eliminated interest on Canada Student Loans. Federal student debt is now 0%. Provincial student loans vary; anyone carrying both federal and provincial debt should check with the National Student Loans Service Centre for the provincial rates.
So, Which Debt Takes Priority?
High-interest (roughly 7%+)
Credit cards, high-rate car loans, payday loans: paying these down is almost certainly the better move over investing during the same period. A 20% credit card is costing you more than any diversified portfolio is likely to return, especially once you account for taxes on investment gains in non-registered accounts.
Employer RRSP matching is the exception. If your employer matches contributions and you're not capturing the full amount, that's a 50–100% instant return depending on the match structure. Capture all of it before paying down high-interest debt.
Low-interest (roughly 4% and under)
At 0%, federal student loans are the simple case. Putting money toward 0% debt while TFSA room sits empty leaves tax-free growth on the table. The TFSA contribution comes first.
At 3–4%, investing in registered accounts is still generally the stronger move. TFSA growth is tax-free, so the effective return is better than the raw market number. Some people can't think clearly with a balance hanging over them, which makes the math less decisive in those cases.
The middle (roughly 4–7%): judgment call territory
Mortgages and most HELOCs live here. The math doesn't produce a clean winner. A diversified portfolio might outperform a 5% mortgage over a long horizon, but investment returns in non-registered accounts are taxable, which can bring a 7% return down to 5% or less after tax. That makes the guaranteed mortgage paydown competitive, especially in stretches when markets underperform.
Many Canadians in this range split the difference: some extra mortgage payments, some investing in registered accounts.
How to Use the RRSP Tax Refund
RRSP contributions generate a tax refund. If you're in a 40% marginal bracket and contribute $10,000, you get $4,000 back at tax time. Most people spend the refund. Direct it at debt instead and you've put $10,000 into the RRSP and $4,000 toward debt in a single move.
This works best when your marginal tax rate is high enough to make the refund meaningful. At lower incomes, the TFSA usually makes more sense before the RRSP, and the refund math is less compelling. Run the numbers with our RRSP vs. TFSA calculator to see which account makes more sense at your tax rate.
Why You Need a Buffer Before Attacking Debt
If you're putting every spare dollar at debt with no liquid savings, the first emergency sends you back to square one. A $1,200 car repair you can't cover lands on a credit card at 20%, and weeks of progress get undone in an afternoon.
The Financial Consumer Agency of Canada recommends three to six months of expenses in an accessible account. You don't have to hit that before touching debt, but even $1,000–$2,000 in a buffer is what keeps a debt payoff plan from getting interrupted by ordinary expenses.
Debt Stress Has a Real Cost
Debt has documented psychological effects. Research published in PNAS found that reducing debt improved psychological functioning and decision-making capacity, particularly in lower-income households. Chronic financial stress degrades cognitive bandwidth, the mental energy available for everything else you're trying to do.
For some people, a $30,000 debt load affects sleep and the quality of every financial decision downstream. That cognitive cost adds to the interest rate when weighing what to do.
Others carry 0% student loans and a 4.5% mortgage without stress. Putting money into a TFSA is the right call for them.
Where to Start
A reasonable sequence for most situations:
1. Build a small emergency buffer ($1,000–$2,000) before anything else 2. Capture your full employer RRSP match: it's an instant 50–100% return 3. Aggressively pay down high-interest debt (roughly 7%+) 4. Build emergency savings to 3–6 months of expenses 5. Invest in registered accounts (TFSA first for most, RRSP if you're in a higher tax bracket) 6. For lower-rate debt (mortgage, HELOC, 0% federal student loans): personal preference, blended approaches are fine
Your version of this will look different. Income, tax bracket, kids, an upcoming mortgage renewal: each one moves the order around. If your debt picture is complicated, a fee-only financial planner is worth finding. The Credit Counselling Society is a Canadian non-profit that helps when debt feels more overwhelming than mathematical.
Sources
Questrade: Average Rate of Return of the Stock Market NerdWallet Canada: Best Low-Interest Credit Cards in Canada Statistics Canada: New Motor Vehicle Sales, October 2025 Wowa: Canada Prime Rate Government of Canada: Permanently Eliminated Interest on Canada Student Loans (April 2023) Statistics Canada: National Balance Sheet and Financial Flow Accounts, Q4 2025 Canada Revenue Agency: How RRSPs Work Financial Consumer Agency of Canada: Setting Up an Emergency Fund PNAS: Reducing Debt Improves Psychological Functioning and Changes Decision-Making in the Poor (2019)
