Should You Pay Off Your Student Loan or Save For a Down Payment?
If your student loans are acting as a hindrance between you and your American dream, we’ll advise you to hold on and take a deep breath because you’re not the only one. According to a survey at credit watchdog Experian, more than $1.44 trillion students are burdened by student loans, across an estimated 44 million borrowers. But that doesn’t mean new college students don’t have dreams. They, too want to have a successful career and live their glorious dream of owning a property.
TBH, this financial goal is a right of passage for many Americans, but those with student loans are left worrying about the consequences. They always find themselves in a puddle and a never-ending conflict – will their debt affect their ability to buy a home?
In this post, we’ll try to figure out if it is better to save for a down payment on a new property, pay off the student loan first, or maybe do both!
The ultimate discussion
A few factors can only determine the right financial move, and one of them has to be your debt-to-income ratio. For those who don’t know, the debt-to-income ratio is the sum of your total monthly income that goes toward paying your debt. Now, this amount consists of all sorts of debt, be it your credit card bills, personal loans, student loans, car loans, etc.
This or that?
If your debt-to-income ratio isn’t up to the mark as of now, the first and foremost thing you need to do is focus on repaying your existing debts to lower the ratio and later apply for a mortgage. Alternatively, you can also save for your down payment, which will ultimately decrease the necessary loan amount, but it won’t do much for your debt-to-income ratio.
Focusing on the debt-to-income ratio
Many studies prove that an average student who graduates with the responsibility of repaying a student’s loan won’t be able to qualify for a mortgage on fairgrounds. And the reason behind that is the unsatisfying debt-to-income ratio.
Therefore, choosing the right path becomes even more necessary. Make sure you keep a close check on your D-to-I ratio and see if obtaining a mortgage is a possibility or not. If not, we’ll highly advise you to wait for a while and work on the numbers before you make a revisit. But, if it’s doable, you might want to start saving up for the down payment while you’re repaying the big debt.
How can you pull off both?
Sure, you can do them both. All you need to do is, have a balance. Start working towards both financial goals simultaneously. Cut down on your unnecessary spending like eating out every night, online subscriptions, etc, and buckle up and start saving for bigger dreams.
Split your savings between loans and down payment funds, or alternatively, put the funds in separate hard-to-access accounts, so you won’t feel the urge of spending them. Remember, every small step counts and leads to a bigger and better game plan.
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