Save for down payment or pay off student loans

How do you approach saving for big goals, such as a down payment on a house, when you still owe money on your student loan? Since these are competing demands on your resources, it can be difficult to decide which to prioritise and where to start. 

Do you settle your student loan first and start with a clean slate, or do you carry the debt for a bit longer and put your money towards saving for that deposit? Or do you do both at the same time? 

Your decision will be influenced by the following factors:

• Your income and debt levels: Can you afford your debt or afford to save? Is there enough money to do both?
• The impact of each approach: Understanding the reason for each option and how it will affect your finances and lifestyle will help you prioritise for your situation.

REASONS FOR PAYING OFF YOUR STUDENT LOAN FIRST	REASONS FOR SAVING FIRST
The longer you have student loan debt, the more interest you’ll be charged and the more expensive it will be. Paying less interest means money freed up to use for other things.	The sooner you get started, the sooner your money will grow.  A property is an asset. Debt is a liability.  Housing could become more expensive faster than your student loan interest increases.  A bigger deposit will lower the overall cost of your bond, freeing up money to pay off a student loan.

DECIDING ON A STRATEGY
You might require a blended approach where you focus on the most urgent debts but still put a bit away for emergencies. Remember, starting small is still starting, and it will accumulate to create a bigger impact. 

Step 1. How much do you need?
Determine the amount you need to save or how much you still owe on your student loan. 
Use our home loan calculator or student loan calculator to estimate your repayments and how changes in term and interest rates could affect you. 
 

 

Step 2. Get a grip on your finances
How much can you afford, and what are your other financial responsibilities? List your debts and expenses and determine how putting money into either savings or paying off your student loan will fit into your budget. 

Step 3. Don’t neglect your other finances
Only putting money into your debt means no savings to cover unexpected expenses. Make sure that paying off your student loan isn’t putting you in a position to accumulate more debt. Set some money aside for emergency savings.

Saving shouldn’t mean ignoring your student loan debt; you still need to make the required monthly payments, or you could land in a position where you might have to use your savings to pay for your debt.