Should I Pay Down Student Loans or Save for a Home Down Payment?

    Everyone’s situation is different, but it’s a universal truth that we can’t do everything all at once. So how do you make the choice between debt and domestic? Here are some tips to help to start the process of deciding.

    Which is a goal, and which is a want? You’d be surprised how many people know the difference. When we discuss the options in a meeting, the results are often surprising!

    For example, you might assume: “of course, I want my own house!” But on reflection, while it would be nice to have a house one day, it’s not important at this stage of your life. However, being in debt from student loans is causing you deep anxiety.  In this case, relieving that anxiety is a goal, the house is a want, and you plan accordingly.

    On the flip side, some people don’t mind having debt and feel a more immediate need for a house for their family. It all depends on what you really want after a thoughtful examination!

    What’s your cash flow really look like?  It’s crucial to dig into your receipts and determine how your money is being spent every month. So many people have no concept of what their actual cash flow is; they can’t say for certain how many coffees they’ve bought in a month, for example, or the average amount they spend going out with friends.

    Here at LPSC Financial, one of our key focuses is education, which means helping our clients gain a true understanding of their fixed expenses versus their discretionary purchases. Once that’s mapped out, you can determine which discretionary purchases you’re willing to sacrifice to achieve your goal.

    What if paying down student loans and buying a house are both goals?  You don’t have to choose one over the other! But here’s where we look at the numbers again and determine what makes the most sense to tackle first.

    Example: let’s say the interest on your student loan is 8%, but you can get a mortgage at 3%. That’s a big difference! So, in this case, that high loan interest rate tilts the scale towards choosing to pay that off as soon as possible.

    Another approach is to split the funds. Let’s say you have $1,000 in excess cash a month: you may choose to put half against your student loan, and half into savings for your down payment. It’s ultimately a slower process to meet your two goals, but that might be the solution that lets you rest easier at night.

    While these suggestions can get you thinking, your smartest move is to talk to a LPSC Financial advisor before you decide. We’ve got the expertise to demystify your financial situation and create a plan to meet your goal, whether it be purchasing a home, clearing debt, or something else entirely!