Should I Save for a House or Pay Down Debt?

You want to buy a house, but you still have debt. So which one do you prioritize first? A lot of people think that the next step after renting for years is buying a house. But if you still have debt, that decision is a tough one to make. So the question becomes, should you focus on saving for a house or paying off debt first? The answer depends on a few key numbers that most people ignore. This question comes up for a lot of millennials who are renting or starting families. Maybe you're juggling a side hustle or a small business and you're trying to manage all of your financial goals at the same time. So today we're going to break down how to decide which financial goal should come first. If you're new here, my name is Justine and I paid off $35,000 of debt in two and a half years on a $37,000 income. Now I've been debt free since 2014 and since then I've helped thousands of people pay off debt. My goal is simple to help you build financial confidence and better budget behavior to help you make decisions that benefit your life. All right, so let's answer the question right away. Should you save for a house or pay off debt? And the honest answer is it depends, but I'm going to help you figure it out for your unique situation. The first thing that you need to look at is how much debt you actually have. I want you writing down every debt, including the outstanding balance, the minimum monthly payment and the interest rate. Actually writing this stuff down is going to help you organize to get you to your answer. And the second thing that you really need to pay attention to in that list is the interest rate on that debt, high interest debt, definitely credit cards and some personal loans is usually a sign that paying off debt comes first over saving for a house. But if your debt is lower interest like a car loan and certain federal student loans, you might have the flexibility to actually save for a house and make your debt payments at the same time. This is especially true if you're a high income earner. So one tool that can really help here is a debt reduction calculator. I personally like using vertex42.com debt reduction calculator. It's a whole payoff spreadsheet. You can plug in your numbers and it's free to use. This tool is going to show you exactly when you are going to become debt free so it can help inform that decision of whether or not you should be focusing on the debt or saving for a house. You can even plug in extra payment amounts on your debt so you can speed up the timeline to show you how quickly and realistically you can become debt free. And if you're someone juggling a side hustle or small business while raising a family, well, the numbers can get really complicated. And that's why today's sponsor is FreshBooks. FreshBooks is a software designed to deliver small business success. It's built for small business owners and freelancers who just want an easier way to get paid, manage their finances and deliver work all in one place. Many of my students run side hustles, they freelance, consult or sell products online. And when you're balancing your business finances, the kids, what's for dinner and your personal money goals, things can get really messy really fast. I actually switched from QuickBooks to FreshBooks which has made managing my numbers so much easier. Here's the thing I want to tell you is QuickBooks was an absolute nightmare at reconciling my accounts. In fact, I had a major meltdown because QuickBooks was showing me I had a negative $46,000 balance in my business checking account. Not possible. So when I migrated to FreshBooks, I was still a little lost, but their customer service 10 out of 10, they walked me through how to reconcile my accounts. So what was showing in my bank account was actually showing up correctly in FreshBooks. That means the numbers are clean and easy to share with the CPA when tax season comes around. FreshBooks is designed to simplify things like expense tracking, reporting, and preparing it tax ready financial data for small business owners. I've personally been loving this and if you want to try it out for yourself, FreshBooks is offering a free 30 day trial by using the link in the description box below or scanning the QR code. Thank you FreshBooks for your support of the channel. So if you're struggling, whether you should pay off debt first or save for a house, you're not alone. The average millennial carries over $6,900 in credit card debt. We've actually surpassed our parents' generation in the amount of credit card debt we're holding. That's not a flex. And get this, the median age of first time home buyers is 38. And at the same time, the cost of buying a home has increased dramatically. The median home price in the US is $415,000. Now if you're living in Manhattan, that could buy you a cute studio in Lincoln Square, but don't forget the $1,100 per month maintenance fees. Higher home prices and higher mortgage rates mean the entry point to home ownership is simply harder than it used to be. So if you're feeling stuck between saving for a house or paying off debt, this is a very normal place to be. But here's the reality, home ownership, in my opinion, is romanticized. People call this the American dream for a reason. They picture the white picket fence, the golden retriever in the backyard, the two kids, the minivan, and this idea of just owning something. But when you own a home, it comes with a cost. Your mortgage payment is just the beginning. Don't forget about property taxes, homeowner's insurance, sometimes there's HOA fees, and then you've got to factor in maintenance, repairs, and renovation projects. And the unexpected expenses will absolutely happen. Now when we bought our home two years ago, just six days after we moved in, our basement started leaking water. And a year ago from that incident, our basement completely flooded. I'm talking about we had to rip out the flooring and cut out the bottom two feet of drywall and spend thousands of dollars mitigating the yard so it wouldn't happen again. I made a video on how we spent $99,000 in the first year of home ownership. I just cringe even saying that number out loud. So you'll definitely want to watch that next, and I will link to that in the description below. My point is, when you own a home, every repair and every problem becomes your responsibility. So if I personally had high interest credit card debt or large student loan payments, I'm absolutely prioritizing paying off the debt first before saving and buying a home. That approach is just going to reduce the financial stress you're feeling and give you a stronger financial foundation. And I want you to hear this clearly, renting doesn't mean that you're failing or falling behind. Renting is allowing you flexibility and to stabilize. In fact, Kyle and I spent almost 10 years renting before we bought our first home. And I'm so glad we had that experience because it afforded us to live in really fun places like downtown San Diego. And in Los Angeles, we rented a condo that was no joke, a 10 minute drive to the beach. We would not have been able to afford a home in that same neighborhood had we considered buying. So I just want you to think about how renting, you can make that feel like a home still, or it affords you to live in really fun, exciting places in your city that you can explore. And while you're doing the exploring and having fun on the weekends, instead of doing the maintenance and repairs, you get to focus on your financial goals. I think one of the most powerful things you can do with your money is focus on one financial goal at a time. So here's a simple framework I want to leave you with to help you make this decision. If you have high interest debt or large debt payments, you should be focusing on paying off that debt first. If your debt is low interest manageable, maybe it's a small balance coupled with, especially coupled with if you're a high income earner, you can absolutely work on both of these things simultaneously. So continue making your debt payments and start putting away money towards a down payment. The key is to understanding your numbers and making a plan for your situation by liking this video and subscribing to the channel. Now the goal isn't to rush into home ownership. The goal is to build a strong financial foundation that you feel really good about, and that's what leads to better budget behavior and financial confidence over time. If this video helped you, let me know in the comments, would you pay off debt first or save for a house? And if you're working towards becoming debt free, then you're going to want to watch this video next, where I explain debt payoff strategies.