Sixty-one per cent of Canadians own Registered Retirement Savings Plans (RRSPs). However, according to a recent BMO Financial Group study, only 37 per cent of respondents plan to contribute to their RRSPs by this year's February 29 deadline.  

If you're feeling pressure as the deadline approaches, keep in mind that smart RRSP decisions can benefit from the creative use of credit cards. Here are some tips for overcoming the challenges that many Canadians face during RRSP season.

Canada's RRSP personal savings gap
Thirty-six per cent of BMO survey participants admit that they have lost confidence in their retirement savings abilities, compared to just 18 per cent who felt that way last year.

At the same time, Canadian household debt has surged to 150.8 per cent of disposable income -- a third higher than the 114.6 per cent household debt ratio in the United States. With debts swelling to unsustainable levels, some Canadians are cutting back on their RRSP contributions.

Tip: Consider switching to low-interest credit cards as a way to free up cash for RRSP contributions.

Saving up for retirement versus paying down debt
There is another type of retirement savings tool that many Canadians use for retirement -- the Tax-Free Savings Account (TFSA). A TFSA is a back-end tax shelter that allows non-taxable withdrawals. RRSP redemptions, in contrast, are subject to income tax. A TFSA can serve as an alternative to an RRSP. Some Canadians have both.

So what's the best way to prioritize among the TFSA, RRSP and any credit card debt that's been piling up? Check the interest rate on your credit card debt. If it's higher than the interest you're earning with the TFSA or RRSP, tackle the debt first. Less debt and interest costs mean improved cash flows that you can then divert into whichever savings vehicle you choose.

Tip: Use your monthly credit card statements to budget for both RRSP and TFSA contributions.

Using RRSP withdrawals to pay credit card bills
Financially stressed consumers may consider collapsing their RRSPs to pay down high-interest credit card debt. CreditCards.ca calculated the interest costs of two different scenarios involving a $10,000 balance on a credit card with a 20 per cent average percentage rate (APR): In the first scenario, the cardholder uses a $10,000 RRSP withdrawal to pay down the balance. In the second scenario, the cardholder pays down the balance over time without the withdrawal.

Based on the Financial Consumer Agency of Canada (FCAC)'s Credit Card Payment Calculator, if the cardholder paid  $300 monthly, it would take them 4 years and 2 months to eliminate the $10,000 credit card balance. Given the 20 per cent APR, the cardholder would then be out $4,718.19 in interest expenses over that time horizon.

So is it a better idea to withdraw $10,000 from an RRSP instead? Based on 2012 tax return rates, an Ontario resident who earns under $42,707 annually would have to pay an extra $2,005 in income taxes for a $10,000 RRSP redemption.

Plus there's another issue. In anticipation of that income tax, federal government rules require the financial institution that oversees your RRSP to automatically withhold 20 per cent (in this case, $2,000) from the gross $10,000 RRSP withdrawal. Therefore, only about $8,000 will be available towards paying off the $10,000 credit card balance. So that leaves a debt of $2,000 that needs to be paid off.

The good news is that, by paying $300 monthly, the time required to eliminate the remaining $2,000 credit card balance shrinks to only 8 months, costing an extra $138 in interest. The total expense for the $10,000 RRSP withdrawal thus becomes $2,143 ($2,005 in income taxes plus $138 in interest charges).

In this test scenario, extracting cash from an RRSP results in expenses less than half the $4,718.19 in interest charges otherwise needed to pay down the $10,000 debt over a longer time frame. Those savings then become available for future RRSP contributions. Keep in mind, however, that, if your card has a lower APR, or if you're able to increase your monthly debt payments, the RRSP withdrawal might be the more expensive option.

Tip: Other options for reducing debt include negotiating lower rates and fees, and zero percent balance transfer deals.

See related: Tax-Free Savings Accounts: 7 smart strategies; How much retirement income do Canadians really need?