--- title: Should I Pay Off Debt or Save for a House Deposit description: "If you’re currently asking, “Should I Pay off Debt or Save for a House Deposit?” we can help. Hint: the best answer for you depends on your goals and situation" image: https://lanyana.revivefinancial.com.au/hubfs/Is-it-better-to-pay-off-debt-or-save-money%3B-our-calculators-will-help-you-decide.jpg --- [![DR-Logo---Powered-by-RF-(2021)-137x60px](https://lanyana.revivefinancial.com.au/hubfs/DR-Logo---Powered-by-RF-(2021)-137x60px.png)](https://debtrescue.com.au) Menu [Apply Online](https://solutions.debtrescue.com.au/online-assessment-form) [1800 003 328](tel:+611800003328) 1800 003 328 - [Recent Articles](https://solutions.debtrescue.com.au/articles) - [Debt Consolidation](https://solutions.debtrescue.com.au/articles/tag/debt-consolidation) - [Debt Agreements](https://solutions.debtrescue.com.au/articles/tag/debt-agreements) - [Informal Agreements](https://solutions.debtrescue.com.au/articles/tag/informal-agreement) - [Debt Relief](https://solutions.debtrescue.com.au/articles/tag/debt-relief) - [Bankruptcy](https://solutions.debtrescue.com.au/articles/tag/bankruptcy) - [Budgeting](https://solutions.debtrescue.com.au/articles/tag/budgeting) - [Business Debt](https://solutions.debtrescue.com.au/articles/tag/business-debt) - [Credit File](https://solutions.debtrescue.com.au/articles/tag/credit-file) - [Education](https://solutions.debtrescue.com.au/articles/tag/education) - [News](https://solutions.debtrescue.com.au/articles/tag/news) - [Research](https://solutions.debtrescue.com.au/articles/tag/research) - [1800 003 328](tel:+611800003328) Talk to a Professional Apply Online [1800 003 328](tel:+611800003328) Call Now # Should I Pay Off Debt or Save for a House Deposit Posted by [Debt Rescue](https://lanyana.revivefinancial.com.au/articles/author/debt-rescue) on Jun 1, 2022 1:34:00 PM - [Tweet](https://twitter.com/share) [![](https://lanyana.revivefinancial.com.au/hubfs/Is-it-better-to-pay-off-debt-or-save-money%3B-our-calculators-will-help-you-decide.jpg)](https://lanyana.revivefinancial.com.au/articles/pay-debt-or-save-01) "Should I pay off debt, or save for a house deposit?" This is a common question among Australians in the red and not yet on the property ladder. And, to be honest, it’s a tough one – especially given that interest rates are on the rise and house prices are now taking a dip from 2021’s massive hike. Ultimately, the decision comes down to what you want, and your current financial situation. To help you decide, here are some key things to weigh up that will help determine which option is the best one for you. ## The pros of paying off debt First off, let's start with your debt. How many debts are you currently juggling right now? If you have a number of unsecured debts, including credit cards and/or personal loans, such as a car loan, chances are you’re paying high rates of interest on these debts. By focusing on paying your debts down first, you can: - Reduce the amount of interest you pay over time - [see by how much](”https://revivefinancial.com.au/knowledge-centre/calculators/credit-card-calculator/”) - Help yourself out in the financial long term - Improve your credit score - Boost your borrowing power - Make your home loan application stronger (and more successful!) - Reduce the mental load ## The pros of saving for a house Next question: How important is buying a house to you? If purchasing your own home is one of your big life goals, as it is for many Aussies, saving for a deposit should definitely be on your financial checklist. There are many pros to saving for and buying a home, including: - Building equity on an asset that will appreciate over time - Mortgage repayments are a way to save money (as opposed to renting) - Potential to leverage your home equity by redrawing your loan or mortgage refinancing - You can do what you want with your home - Living security as you’re not at the mercy of a landlord - You have control over your costs if you choose a fixed-rate mortgage ![Is-Your-Business-In-Financial-Distress](https://lanyana.revivefinancial.com.au/hubfs/DR%20Blog%20CTA%20Banner%20-%20Personal%20Debt%20Solutions.gif) ## Key factors to consider Whichever way you’re swayed, the pros of each aren’t the only things to consider: ### #1 – Can you afford to save right now? If you’re struggling to make ends meet right now, paying off the minimum on your debts may be all you can afford to do, especially as the costs of living keep rising. In this case, focusing on paying off your debt, or at least a large chunk of your debt may be your only option or the best option. ### #2 – Can you afford a mortgage after you buy? If you’re currently managing your existing debt repayments, do you have the money not only to start saving for a house but to also comfortably afford home loan repayments if you can save enough for a deposit? This is a crucial consideration. You don’t want to end up further in debt and put yourself in a position where you’re [struggling to pay your mortgage](”https://solutions.revivefinancial.com.au/articles/struggling-pay-mortgage”) and debt becomes overwhelming and unmanageable. ### #3 – The state of the market The latest hike in interest rates, which is expected to rise further, means it could be a good time to start paying off those high-interest debts before they get any higher. It could also be a bad time to take a home loan as you won’t be enjoying the same low rates as previously. In addition, while property prices are dropping slightly, they still remain high, after [rising 23.7 per cent last year](”https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/residential-property-price-indexes-eight-capital-cities/latest-release”), meaning it's still a sellers' market. However, bearing in mind it takes the [average Australian 3-8 years](”https://www.domain.com.au/news/first-home-buyer-report-1126138/”) to save for a deposit, these may have dropped again by the time you come to buy. Plus, the higher interest rates mean you could build savings faster. ### #4 - Your pay off debt or save for a house game plan Whether you decide to pay off debt or save for a house, you need a feasible game plan. And this starts with creating a monthly budget. Not sure where to start? Take a look at our handy [budgeting calculator](”https://revivefinancial.com.au/knowledge-centre/calculators/budgeting-calculator/”). After putting in your income and expenses, we can provide you with a summary of what you’re left over with each month (or not!). Once you know the numbers, you can start looking at ways to tighten your belt further, reduce your debt, and/or start saving for a house deposit. Some initial ways to cut back and enjoy some quick wins, which you can use to pay off debt or save for a house faster, include: - Buying own brands for your groceries or produce that’s in season - Shopping around for cheaper utilities and insurance - Hiding your credit cards so you don’t get into more debt - Selling unwanted or unused household items - Reducing multiple subscriptions such as Netflix, Disney+ and Stan - Getting a second job and only using that income to pay off debt or save #### If you're paying off debt Once you’ve found ways to claw back or make extra cash to pay off your debt, you need to look at which debts you should be paying off first. There are two ways you can go: debt avalanche versus the debt snowball method. The debt avalanche method means you tackle the highest interest rate debts first. The debt snowball means you pay off your smallest debts first. If you choose the first option, you pay less over time. However, it’s a marathon, not a sprint, as you don’t see results straight away. If you pay the smallest debts first, you can see small wins and progress, which can be more motivating. You could also [consolidate your debts](”https://revivefinancial.com.au/knowledge-centre/calculators/debt-consolidation-calculator/”) into one single lower interest monthly payment. This can make your debt both physically and mentally easier to deal with. Check out our [debt consolidation calculator](”https://revivefinancial.com.au/knowledge-centre/calculators/debt-consolidation-calculator/”) to see how much you can save. Just be careful that you don’t start spending again on the credit you’re freeing up! #### If you’re saving for a house Once you’ve got your budget sorted and have worked out where the money to save is coming from, there are several things to think about next. First is how much you’ll need to save for a house deposit. This is typically 20 per cent of the price of your home. However, with the introduction of the [First Home Loan Deposit Scheme](”https://www.nsw.gov.au/life-events/living-nsw/buying-residential-property-nsw/financial-support-for-first-home-buyers/first-home-loan-deposit-scheme”), you may be able to purchase a home with only a 5 per cent deposit, plus avoid Lender’s Mortgage Insurance (LMI). This can knock years off your saving time. You should also look at putting your home loan savings into a separate high-interest account. This will stop your money from being eaten up each month and help you reach your deposit goal faster, especially as interest rates rise. If you can, save for a deposit with a partner or even a friend or sibling. This can help you save and get on the ladder quicker. ## It’s possible to do both The good news is that it’s possible to pay off your debts and save for a house if you’re being money smart and have your budget sorted. In fact, even if you decide not to save for a house right now and pay off your debt instead, you should be putting aside a small amount each month in savings as a buffer. A good rule of thumb is about 10 per cent of your income. Again, put the money in a separate savings account for interest and safekeeping. ## Should you pay off debt or save for a house – our two cents worth So, now we’ve covered all the considerations, let’s get back to the question: should you pay off debt or save for a deposit? Well, it depends. If you’re struggling to pay off multiple existing high-interest debts, we recommend focusing on that as a priority – especially as interest rates are dubbed to keep rising. If you’re managing your existing debts and can afford your mortgage repayments, you could do both. But perhaps [pay off those niggling high-interest credit cards](”https://solutions.revivefinancial.com.au/articles/6-ways-to-pay-off-credit-card-debt”) first so you can start saving for your deposit with a clean slate. Don’t let the current market affect your decision too much. It’s always swings and roundabouts when it comes to interest rates and house prices. Are you struggling with unmanageable debt or unable to save? [Get in touch](”https://revivefinancial.com.au/contact-us/”) with our team of debt solution specialists today on **1800 560 557** for professional, non-judgemental support and advice. Don’t forget to check out our handy suite of [debt calculators](”https://revivefinancial.com.au/knowledge-centre/calculators/”) to help you make the right decision and take back control. Topics: [Budgeting](https://lanyana.revivefinancial.com.au/articles/tag/budgeting), [debt calculator](https://lanyana.revivefinancial.com.au/articles/tag/debt-calculator), [pay off debt](https://lanyana.revivefinancial.com.au/articles/tag/pay-off-debt), [buying a house](https://lanyana.revivefinancial.com.au/articles/tag/buying-a-house), [Debt Management](https://lanyana.revivefinancial.com.au/articles/tag/debt-management), [save for a house deposit](https://lanyana.revivefinancial.com.au/articles/tag/save-for-a-house-deposit), [money management](https://lanyana.revivefinancial.com.au/articles/tag/money-management), [debt advice](https://lanyana.revivefinancial.com.au/articles/tag/debt-advice) ## More Articles - Recent Articles - Debt Consolidation - Debt Agreements - Informal Agreements - Debt Relief - Bankruptcy - Budgeting - Business Debt - Credit File - Education - News - Research ### Subscribe Here! ### Get the Latest Debt Free and Budgeting Advice straight to Inbox Free ### Recent Posts ### If you are in too deep with debt, we here to rescue you. 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