Should you pay off debt or save for a down payment first?

Compare the interest rates honestly

The clearest case is arithmetic. If a debt costs considerably more than your savings earn, money directed at that debt does more work than the same money sitting in an account. High-rate revolving credit is almost always in this category.

Lower-rate structured debt — some student borrowing, a very cheap car finance deal — is a closer call, and there the other factors below carry more weight.

Keep a buffer regardless

Clearing every account to zero while holding no cash is a fragile position. One unexpected bill puts the debt straight back on, usually at a worse rate.

A small emergency buffer is not a competing goal — it is what makes debt repayment sustainable. Build it first, then direct the surplus.

Remember that debt affects borrowing capacity

Existing monthly commitments reduce what a lender considers affordable, so paying down debt can improve your position twice: it lowers your costs and it improves how your application reads.

That said, a deposit that is too small has its own consequences, sometimes including a higher rate. Neither side of this trade is free.

How soon do you actually want to buy?

If a purchase is realistically five years away, clearing expensive debt first and saving hard afterwards often ends up ahead. If you are buying within a year, disrupting a deposit that is nearly complete may not make sense.

Be honest about the timeline rather than optimistic. Most people who say next year mean the year after.

A reasonable order for most people

There is no universal sequence, but this ordering suits a lot of situations and is easy to reason about.

• Build a small cash buffer you will not touch
• Clear the highest-rate debt first
• Keep any employer savings match running throughout
• Then direct the surplus to the deposit