Should you invest or pay off debt first?

This is one of the first questions almost every beginner asks, and there's no single right answer for everyone. But there is a right method — a comparison you can run on your own numbers that makes the decision a lot less foggy. Here's how it works, the one case that overrides it, and what to actually do once you've decided.

If you're new to investing: start before you feel ready

A specific version of this question shows up constantly: a young person has a bit of money saved up — from a summer job, a gift, their first real paycheque — and no idea what to actually do with it. If that's you, the single biggest lever you have isn't which platform you pick or which strategy you follow. It's time.

Ontario Securities Commission's investor-education site, GetSmarterAboutMoney.ca, puts it plainly: "the longer you have to invest your money (your time horizon), the more you'll be able to benefit from the power of compounding." Compounding means the returns your money earns start earning their own returns — so a dollar invested in your early twenties has a decade or more of extra snowball effect working for it compared to the same dollar invested in your thirties, even if the later investor eventually puts in more total money.

You don't need a large amount to make this work, and you don't need to have it all figured out before you start. A small automatic contribution now, into a TFSA, beats waiting until you've read every book and picked the "perfect" first investment — the money that's actually in the market is doing more for you than the money still sitting in a chequing account while you research. See the first-steps walkthrough below for exactly how to open that first account.

The comparison that decides it

The math is simple even if the feelings around debt aren't: compare your debt's interest rate to what you could reasonably expect from investing. Whichever number is bigger should get your extra dollars first.

Credit card debt makes this an easy call. The average credit card interest rate in Canada runs around 20%, with most cards sitting between 19.99% and 23.99%. No diversified investment portfolio reliably returns 20% a year — so a dollar put toward a credit card balance is a dollar earning a guaranteed ~20% return, tax-free, with zero market risk. That beats investing every time.

Lines of credit and car loans usually sit lower, often in the 7–13% range depending on the lender and your credit. That's still a high bar for a beginner portfolio to clear consistently, so paying these down aggressively is still usually the stronger move — just not as clear-cut as a credit card.

Mortgages and government student loans are where it gets genuinely close, since their rates are often lower than what a long-term diversified portfolio has historically returned. At that point it becomes less about pure math and more about how much risk and monthly obligation you're comfortable carrying — a reasonable person could go either way.

The exception that overrides all of it: employer RRSP matching

If your employer matches RRSP contributions, capture the full match before putting extra money toward debt — even high-interest debt. A typical employer match is 3–5% of your salary, deposited the moment you contribute your share. That's an instant 50–100%+ return on the dollars you put in, before the money has even been invested. No interest rate on a debt beats that. Leaving an employer match unclaimed is walking away from money that was already yours.

Both your contribution and your employer's match count toward your RRSP deduction limit, and if you also belong to a pension plan, your employer reports a pension adjustment that reduces your available RRSP room for the year — worth checking in EveryToonie's Contribution Room tab before you contribute near the top.

If you're paying off debt: pick a method and stick to it

Once you know debt comes first, the next decision is order — if you're carrying more than one balance, which one gets the extra payment? There are two standard strategies:

Avalanche — pay minimums on everything, then throw every extra dollar at the highest-interest balance first. This saves the most money in total interest, full stop.

Snowball — pay minimums on everything, then throw every extra dollar at the smallest balance first, regardless of its rate. This costs a bit more in interest but clears a whole debt off your list faster, which keeps a lot of people more motivated to keep going.

Neither is "wrong" — avalanche wins on pure math, snowball wins if momentum is what actually keeps you consistent. EveryToonie's Debt Payoff tab lets you plug in your balances and run both, so you can see the real dollar difference for your situation before choosing.

If you're ready to invest: the first-steps walkthrough

Once extra cash is actually going toward investing rather than debt, here's the order that avoids the two most common beginner mistakes — investing blind on room, and overcomplicating the account setup.

1. Know your room first. TFSA, RRSP, and FHSA each have their own contribution limits, and CRA My Account only shows a number that's current as of last year's tax filing — not today. Check your real room in EveryToonie's Contribution Room tab before contributing, especially if it's your first year. (We wrote up exactly why the CRA number lags in a separate post if you want the full mechanics.)

2. Pick where the account lives. For commission-free TFSA, RRSP, and FHSA investing, we use Wealthsimple — $0 account fees, $0 trade commissions on Canadian and US stocks/ETFs. (Full comparison against where we keep cash sitting in this post.)

3. Start with what you can, automate it, and don't wait for a "better" moment. There's no minimum balance requirement to open a TFSA. A small, automatic contribution every payday beats waiting until you have a large lump sum — time in the market matters more than timing it perfectly, and automating removes the decision entirely.

4. Log every contribution the day it happens. Since CRA won't show it for months, the only accurate running total is the one you keep yourself.

Referral terms: you and a new Wealthsimple client each get $25 on a $100+ external deposit within 30 days, with a 180-day hold before the bonus can be withdrawn.