Debt Payoff or House Downpayment?

Let me start out by saying that we’re no way near our debt payoff process. In fact, we’ve just started a few months ago and have a very long and at times painful journey ahead. But my hubby and I got into an argument about this last Saturday on our way to visit my mother in law stuck in traffic for hours. Which wasn’t pleasant, but we cheered each other up by getting some chocolate shakes from Dairy Queen~^^ But the problem still remains.

So I brought up the conversation of how I’m so excited to have started to get serious about paying down our debt and how we should start saving for our house downpayment right after all the debt have been paid off. By this point, we hadn’t talked about when we were going to buy a house. We agreed on budget and paying down our debt, but we didn’t exactly talk about when we’ll save up for a house. Basically, we didn’t have specific financial plan that we’d agreed upon for the period after the first 2 years of our debt paydown plan. My hubby didn’t want to wait until all our debt, including his MBA loan, were paid to start saving for a house. He’s reasoning was that the housing market in our area has already rebounded and it’ll continue to rise. He doesn’t want to end up buying a house at the very peak and miss out on good opportunity.

My reasoning for waiting until paying off all our debt is that all the income will be ours to save and do whatever with and we can just focus on buying a house. I didn’t want to try to save for a house while juggling other debt. Debt is a big source of stress for me and him of course, so I want them out of our lives and not keep them around. I do see his point, but I still think my plan will make my heart lighter.

So here’s how my plan and his plan will pan out in my projection.
1. I win the argument and do it my way. Without adding my hubby’s MBA loan, I want to payoff my undergrad and his undergrad loan in 3 years. In that time, our cars will be paid off as well as our 401k loan. After that I want to payoff his massive MBA loans in 4 years and take another 2 years to save up for our house down payment. I will be around 42 by the time everything’s done.

2. He wins the argument and do it his way. Focus on paying down our debt until he finishes his MBA in 2 1/2 years. Then start to save for a down payment while making regular school loan debt, which includes left over undergrad loans and full MBA loans. I’m guessing it’ll take around 4 years to save up for a house down payment since we’re paying for the school loans at the same time, which will be over $1,000 a month for 10 years just for the MBA loans. With this plan, we’ll be able to buy a house in 6 1/2 years from now, but will keep our MBA loans until I’m around 45 since we’ll be paying a lot more interest on school loans and trying to juggle different things financially at once.

I’m not a math person, so I could be a little off. But this is the general plan of it. What do you guys think? Do you guys have another plan we should look into? How did you guys do it in your case?


15 thoughts on “Debt Payoff or House Downpayment?

  1. This is something that we were debating. Should we pay off my student loans or buy our next house? We chose to pay off the loans as we don’t want to have as much debt.

    • It would be easier if both of us were in the middle trying to figure out which is best. We’re at the opposite side trying to bring the other person in. I wish my hubby will give in, but I think we’ll most likely have to find something in between. I totally agree with you on your decision~^^

  2. We decided to get our home first. Where we are the prices are starting to creep back up and we may end up paying 2-3x as much if we waited. Plus we got a 3.5 interest rate. Now we will be looking to tackle the loans.

  3. That is a really tough call! I tend to side with you for the stress/emotional factors. I don’t think it makes sense to save $500 for a down payment a month if you’re paying that much or more in student loan interest. Once the interest payments are more manageable, then that’s when I would start saving.

    • I want my hubby to start following some of the financial bloggers that I follow, so he understands where I’m coming from. He tries to agree with my new found knowledge and follow together, but he’s still not with it 100%. I’ll probably post a follow up when we finally reach an agreement.

  4. This one is a toughy but I would try to pay off student loans first and then start saving to buy a home. Or maybe wait until a good chunk of student loan is paid off first. I don’t know what the interest rates are on your student loans but if they’re anything like mine then they’re not pretty…

    • Our undergraduate loans are a lot but not like the MBA loan. They certainly aren’t pretty. We just have to be more aggressive in paying down our loan while we settle this. I look forward to the day I post an entry about how I paid off all our student loans. How awesome that’d be~

  5. One of the toughest parts of personal finance and budgeting is having competing priorities. I am in the process of buying a house but I’m also closing in on paying off my debt. I did have to shift my focus for a bit from debt repayment to home savings in order for me to have an equal contribution to the purchase price as hubby. I would have had the debt paid off a bit sooner (maybe 6 months?) but wouldn’t have nearly enough saved for the house. Its a tough call for sure. I think if you guys can really crunch the numbers and not just estimate and see if you’re right in that if you guys do it his way it will actually take longer to buy the house, then its practically a no-brainer, mathimatically, but sometimes, emotions win over logic. Good luck!

    • I think with me, emotions play a big role on my finance. I don’t want that weight on me anymore. But I’m not alone in this, so my hubby and I have to work this out. Thanks.

  6. Tough call, because either way one of you will be sacrificing a little bit of what you believe in. I’d go with paying down the student loans first (that’s what I personally did, and I would probably be a hippocrite if I said otherwise). I really really wanted a house, but knew that I didn’t want to be emotionally tied to my loan debt when we finally bought the house (feeling like we couldn’t afford it, or shouldn’t have done it). Student loans aren’t defaultable and you don’t have anything tangible to show for them or sell if things get rough. But you never know where the housing market will be in a few years. If you wait 2 1/2 years like in his plan you might both feel differently by then anyway.

    • That’s a great point. We might have different opinions later on. It’s not like we need to decide right now. We’ll need to continue to communicate and re-evaluate.

  7. How much is the interest on the student loans? I have massive grad school loans too but much of it is very low interest range 2-3%. The highest is like 4.5% which I’d like to pay off. If the interest is low, I’d prefer to save for the downpayment (and putting anything extra towards the loans). I think there can be a balance between saving and debt payment.

    • The grad loan interest is 6.8% and the other ones vary from 2.3% to 6.8%. I think for now we’ll focus on debt payment and before my hubby graduates, we’ll talk about it again and decide for sure then how we’ll balance it.

  8. Pingback: Mid-Year Goals Review | Michelle's Finance Journal

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