Is a TFSA better than paying down debt?

Whether a TFSA is better than paying down debt depends on the interest rate on the debt, the expected return on the TFSA investments, and your risk tolerance.

A good rule of thumb:

• Pay down high-interest debt first — especially credit cards, payday loans, or other debt with very high rates. Paying off debt gives you a guaranteed return equal to the interest you avoid.
• Consider a TFSA for lower-interest debt only if you’re comfortable with the investment risk and have a long enough time horizon.

A few important clarifications:

• A TFSA is an account, not an investment itself. The return depends on what you hold inside it.
• Investment returns are not guaranteed unless you keep the money in a guaranteed product like a GIC or high-interest savings account.
• If you don’t have any cash buffer, it often makes sense to keep a small emergency fund first so you don’t have to borrow again for unexpected expenses.

In short: high-interest debt usually comes first; low-interest debt vs. TFSA investing is a closer call. If you want the safest financial move, paying down debt is often the better choice; if the debt is cheap and you can invest for the long term, a TFSA may come out ahead.