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So I have been diligently working on my TFSA and now have roughly 26,500 in it. I have invested that money into the Argonaut 5-pack strategy but I added a 6th. (I own CAR.UN, TELUS, CNR, TD, ENF and Fortis). I own pretty much equal parts of those stocks since Aug 16. They have done really well in my eyes. My gain/loss unrealized is at 5% so far. I just bought a car and in order to get a good deal on it, I forfeited the O% for a better price which I'm now financing at 5.24%. The amount is coincidently about the same amount I have in my TFSA. If I paid it off now I would save roughly $3800 in interest. Should I just pay that off and take my guarantee or keep riding the wave. Seems like a lot of uncertainty upcoming for the market. I would be taking my car payment $528 pumping that back into my TFSA and putting OT money back in there...

Lets hear the opinions and why please?

Thanks again Canadian Money Forum
 

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Keep the investments, keep making the monthly payments on car payments. If your income gets into distress you can sell the investments and pay off the debt, if things continue ok you have the car and the investments. While you are paying down the car financing your investments will be making contributions in your TFSA.

Those are my thoughts. FWIW it is this line of thinking that led me to collapse my RRSP to a taxable while I still had a good paying job, I was using my house line of credit as the consideration.
 

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Post #4 is bad advice.

The car payments are being paid with after tax money. If your marginal income tax rate was 50% you would have to earn twice the amount of the payments. Therefore, the effective interest rate could be 10% or more. The likelihood that the investments in your TFSA will return 10% over the next year or two is very low. (Some analysts are predicting a market correction). If I were in your shoes I would liquidate the TFSA and pay off the car loan immediately. This gives a guaranteed rate of return of 5.24% in after tax money, or approximately 10% before tax.

Then I would start saving again. A caution: since you would be withdrawing from your TFSA in January 2017, the amount withdrawn would not be included in your TFSA contribution room till January 2018. However, assuming you have not already contributed in 2017, you would have $5,500 contribution room available in 2017. That is equivalent to between 10 and 11 car payments that you would not be making.
 

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Financing a depreciating asset, with after-tax money, like a car at 5.24%, is not good debt. Kill the debt.
I agree that car debt is not good debt and there should be a focus on paying it down. Robert Kiyosaki in his books prods that house debt is not good debt either as it doesn't generate a return. We all need shelter and I think not having a vehicle isn't very practical either. I do like the OP's stock selections and just think they should try to keep the investments, more time in the market.
 

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I think this is going to come down to how much you hate debt. For most of us, we would do anything to stop the 5.25% bleeding; that includes me.

I don't think there is a wrong answer but, if you decide to keep the stocks, consider increasing your car payment to the maximum you can stand.
 

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Aren't TFSA contributions also made from after tax income ?

Won't cars depreciate exactly the same amount regardless of if they are financed or paid in cash ?

It seems contrary to the "pay yourself first" theory of saving to liquidate investments to buy things.

I agree to accelerate the car payments early in the loan to reduce the overall interest costs.
 

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I agree that car debt is not good debt and there should be a focus on paying it down. Robert Kiyosaki in his books prods that house debt is not good debt either as it doesn't generate a return. We all need shelter and I think not having a vehicle isn't very practical either. I do like the OP's stock selections and just think they should try to keep the investments, more time in the market.
All good David....I'm just saying financing a depreciating asset should be avoided if possible. It's not a case about not needing a car. ;)

Like Tom wrote, depends how much you dislike owing other people money. Everyone is different.
 

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All good David....I'm just saying financing a depreciating asset should be avoided if possible. It's not a case about not needing a car. ;)

Like Tom wrote, depends how much you dislike owing other people money. Everyone is different.
This is essentially what it comes down to. You can either have money in your account and owe thousands and thousands of dollars to someone, and pay it down slowly overtime (into a depreciating asset), or you can clean out your account and have a clean slate where you owe nothing to anybody. I prefer the latter. I know what I have is mine and I know that I owe nobody a penny. It's essentially comparing a net worth with no debt vs a net worth with debt. At the end of the day, your net worth is what it is. Why not kill the debt while you're at it and have a clean slate?

By the way, love your blog
 

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The only good debt is one that is making you money, for example a mortgage on a rental property. There is no advantage to having debt on depreciating assets such as vehicles, unless the interest rate is ridiculously low. For example, in 2012 I bought a new car costing approximately $40K and financed the entire cost for 3 years at 0.99%. The total interest cost was about $500. Meanwhile, I was able to invest that declining balance in my "car account" in the markets, which were doing very well. I saw it as a form of cash management. Had I been presented with an interest rate of 5.24%, I would have sold some investments and paid for the car in cash.
 

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I say liquidate the TFSA and pay off the car right away. That's a guaranteed 5.24% rate of return on your money. As you say, you can then take the amount you planned to pay for car payments and pump that back into the TFSA.

Another option to consider if you don't mind some debt, but want to change your bad debt into good debt: Pay off the car loan as above, then get another loan, such as a line of credit, and borrow the money back and invest this money in the same investments. Now your loan interest is tax deductible. Of course, to do this, you would need to invest outside of your TFSA in a non-registered account, meaning you will be paying tax on any income generated or capital gains.
 

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It doesn't have to be all or nothing.

Most of the interest is accumulated in the early years of the loan.

If the OP paid down 50% of the loan it would lower the overall interest rate and keep 50% in the TFSA.

I still think people using their retirement TFSA as a savings account for purchases is leading to a lot of future problems.

If people save for 5 years and then drain their TFSA to buy a car, and then refill the TFSA over the next 5 years.......that is 10 years of their investment timeline used up to gain 5 years of contributions. Depending on markets, a lot of tax free growth could be lost.

Do it too many times and they won't reach their retirement goals.

Repaying the contributions and paying new contributions would be a problem for most people.

David Chilton described it this way in his Wealthy Barber Returns book.

I’m worried that many Canadians who are using TFSAs as retirement-savings vehicles are going to have trouble avoiding the temptation to raid their plans. Many will rationalize, “I’ll just dip in now to help pay for our trip, but I’ll replace it next year.” Will they? It’s tough enough to save the new contributions each year. Also setting aside the replacement money? Colour me skeptical. The reason I always sound so distrustful of people’s fiscal discipline is that after decades of studying financial plans, I am always distrustful of people’s fiscal discipline. And even if I’m proven wrong and the money is recontributed, what about the sacrificed growth while the money was out of the TFSA? Gone forever.

http://www.theglobeandmail.com/globe-investor/personal-finance/the-wealthy-barber-explains-tfsa-or-rrsp/article1356709/?page=all
 

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I'm also invested in the Argonaut 5-Pack in my TFSA, but did the opposite and sold my vehicle last year. Now I'm taking the bus but still have that cool TFSA. I've yet to tell the driver and the folks around me that I'm there because it's good for my cash flow. Maybe one day they'll ask.

As an aside, I was essentially faced with the same decision a couple years ago. Whether to liquidate my TFSA to pay for my MBA, or whether to borrow the money. I chose to borrow and am now aggressively paying back the debt. It worked out well in the end financially and ended up being the correct decision. But whether the 5/6-Pack will justify leverage in the next couple of years I cannot say. Bit of a different scenario borrowing for education rather than borrowing for a vehicle though.
 

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There's also commissions to consider when replenishing the TFSA. Are you buying $500 worth of additional stock every time you contribute? Or are you waiting to accumulate a few thousand before you buy a position? The first case you're looking at potentially $500 in commissions to get you back to where you were (depending which brokerage you're at). In the later case, you're saving on commissions but will have money sitting in there doing nothing while you wait. Something else to factor in.

One other thought: do you have a mortgage or own a home? You may be able to lower your cost of borrowing without using the TFSA. Occasionally banks will even have promotional rates on unsecured lines of credit (ie: we had one for under 2% for a year).
 
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