With RRSP season quickly coming to an end, many Canadian investors may be wondering whether they should borrow to contribute to their retirement fund or whether they should use whatever money they have to pay off debt.

According to a recent study, Canadian baby boomers are expected to inherit more than a trillion dollars over the next 20 years, which could go a long way to offset the recent losses in their investments.

“If you have recently acquired an inheritance or received a year-end bonus from your employer, you may be wondering just how to spend it,” said Tom Hamza, president of the Investor Education Fund (IEF), a not-for-profit organization established by the Ontario Securities Commission to provide unbiased financial information to the public.

“Rather than squandering it all on a new sports car or a wardrobe full of designer clothes, consider what might offer the biggest benefit over the long term.”

Many experts believe you should borrow to contribute to your RRSP if interest rates are low and you know you will be able to pay off your loan within a year.

One of the first things to think about when deciding whether or not to borrow money is whether the debt you are going to take on is good or bad debt.

Not all debt is the same.

Good debt includes anything that is too expensive to pay cash for but is something that you need or might be considered a good investment.

Debt that helps you purchase something that will increase in value and can contribute to your overall financial health can be considered good debt, such as buying a home, or a loan to improve your education.

Bad debt is any form of debt with a high interest rate for things you don’t really need or can’t afford, such as charging an expensive vacation on a credit card. The worst form of bad debt is credit card debt because it carries the highest interest rates.

In the situation of borrowing to contribute to an RRSP, the tax-free growth of your money in your RRSP should offset the cost of the interest on the loan. You can use the tax refund that you get from making an RRSP contribution to help pay off the loan faster.

One way to contribute to an RRSP without borrowing is just to contribute the amount of money each month that you would have paid in interest if you had taken out a loan.

For example, if you were going to borrow $20,000 and pay a $350 monthly loan repayment, simply contribute $350 each month to your RRSP. This way you continue to make some contribution — in this case $4,200 — but you’re not borrowing any money, you’ll pay no interest and you won’t be adversely affected should interest rates increase.

If you have a lot of RRSP contribution room, you can take a series of small, one-year loans instead of one big one. You will pay less interest, have less debt and can use your RRSP refund to help you pay off your loan each year.

Financial experts advise people not to borrow to the maximum and always leave themselves some access to credit in the case of an emergency.

If you’re wondering whether it’s better to use the money you have to put into your RRSP or pay down your debt, the IEF has a new calculator (http://www.getsmarteraboutmoney.ca/tools-and-calculators/pay-off-debt-or-invest/default.aspx) that will help you decide.

It will help you to determine the break-even rate of what your investment must earn — before tax — to match the return from reducing debt. If you don’t think your investment can beat the break-even rate, it’s normally better to pay down your loan.

Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors. He can be contacted at boggsyourmoney@rogers.com.