Paying off credit cards with a loan or investments?

Money is extremely tight and I’m living by spending as little as I can. I made the mistake of opening a new credit card a while back and am trying to close it while fighting the interest rates and other payments. Should I pull from my RRSP account or try to get a personal loan so I can close some of my credit cards? If a loan is the way to go, where would be the best place to go to get one?

In this situation, where you have a high-interest credit card (or multiple cards) and you want to get them paid off, there are a few things you can try.

First, you can call the credit card company. Let them know you’re struggling at the moment and ask them for a lower interest rate. Some cards may lower your rate temporarily in the hopes of keeping you as a happy customer in the long term.

The next thing you can do is shop around at local banks and credit unions for either a line of credit or a personal loan. A line of credit often has a lower interest rate (typically in the 5% to 8% range). This will be a lot easier to manage than the typical 19% credit card interest rate. You can use the line of credit or loan to pay off the credit cards and then work on paying down the more affordable loan.

You mentioned having an registered retirement savings plan (RRSP) account. You could withdraw money from the RRSP investment account to pay off the credit cards. Keep in mind though that withdraws from the RRSP will be taxed as income. Usually this means around a third of the money from your RRSP will go toward taxes. It may be worth using your RRSP to pay off your credit card, especially if you’re struggling to keep up, but because of the high tax bill that will come with taking money from the RRSP it’s something I’d only recommend doing if the first two options don’t work.

Finally, and this isn’t an attractive option either, see about getting another job which has the sole purpose of paying down your credit card debt. Some gig jobs, for example, have flexible hours and doing a shift a week until your debt is paid down to a manageable level may be worth in.

In short, my four suggestions, in order, are:

Try to reduce the interest rate on your credit cards.
Try to get another loan or line of credit at a lower rate.
Withdraw money from your RRSP or other investment.
Find a second, part-time (or gig) job to pay down the credit cards.

You can also combine some of these. For example, you may be able to reduce the credit card interest rate and take extra work to pay down the debt faster.