My fiancé and I are thinking about buying a house in the next year or two, and are starting to put aside savings for a down payment. I have quite a bit of money in student loans (about $35,000), and we're not sure if would be more beneficial to be putting any extra money into a fund for a larger down payment or paying off a larger portion of my loans. Which would be better when we are ready to buy our home?
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When considering a financial plan of action, the most important factor to look at is the interest rates on your debt. If you have any debt that comes with high interest, like credit card debt or private student loans, you should pay that off before you start full force saving for your down payment.
There's not much of a benefit to accelerating student loan repayment if you'd be sacrificing saving for your goal, unless of course your loan comes with high interest. If you have more than one federal student loan, consolidating your loans could be an option for you to lower your monthly student loan payments. That would make it easier to manage your student loan debt while paying off other higher interest debt (if you have any) and saving more for your down payment.
And since it's tax season, just a reminder: If you meet the income requirements you can deduct up to $2,500 in student loan interest, and the deduction applies every year for the life of your loan. Happy saving, and remember to use a high-yield savings tool for your down payment fund.