[Yusra]

New graduates often wonder if they should aggressively pay down student loans or save for major goals like a home down payment. Here are some factors to help decide the better financial move:

Current Interest Rates

Ideally, tackle debts with interest rates exceeding 4-5% first before saving for goals. Higher student loan interest rates take priority over down payment savings. If already below 5%, lean towards down payment savings.

Type of Student Loans

Since federal student loans offer income-driven repayment and forgiveness options, it may be better to pay minimums on them while saving for a home if the interest rate is reasonable. Focus on paying private loans quicker.

Mortgage Savings

Come up with your down payment goal amount based on lenders’ requirements to qualify for a mortgage without private mortgage insurance (PMI). How long will it take to save the target amount?

Foregone Investment Returns

Run the numbers on potential earnings if you invested your down payment savings in the market over the same time period required to save enough. Weigh which path costs more in lost returns.

Payment Shock

Will paying off student loans too fast while also saving for a home stretch your budget to the point of payment shock when you add a mortgage? Ensure you can cover all obligations comfortably.

Age and Stage of Life

Younger buyers may prioritize student loans since retirement accounts have decades to grow. Older buyers with smaller retirement balances may prefer buying sooner.

Evaluate your unique circumstances—income stability, job outlook, age, family plans, loan rates, and savings timeline to determine if eliminating student debt or saving for down payment gets you farther faster financially. A fee-only advisor can assess the tradeoffs.

[Fergal]

Thanks for sharing that good advice with us Yusra. It is all too easy for people to waste a lot of their money when they first start earning. It is very important to start a savings habit early on, this way you get into the discipline of saving your money, being careful of your money and also of knowing where your money is going. I know from personal experience that it is very easy to spend a lot of your money, without having a good understanding of where it is going, or how you could be using it better.