Should You Pay Off Debt or Save Money?

April 04, 2025•2 min read

When you're preparing to buy a home, one of the most common questions is:
Should I focus on paying off my debt, or should I save money instead

This is such a great question—and the honest answer is: It depends.But don’t worry, we’re going to break it down so you can make the right decision based on your goals.

What Lenders Care About

Many future buyers are concerned about the amount of debt they carry, and that’s understandable. But what most people don’t realize is that lenders aren’t as focused on how much debt you have—they’re more concerned about how well you can handle it.

In other words, it’s not the total balance that matters as much—it’s the monthly payment. This is known as your debt-to-income ratio, or DTI. It’s a key part of the mortgage qualification process.

So even if you have some debt, if your monthly payments are manageable compared to your income, you can still qualify for a loan.

[Source: https://www.consumerfinance.gov/ask-cfpb/what-is-a-debt-to-income-ratio-why-is-the-45-percent-ratio-important-en-2101/]

Why Saving May Go Further

If your goal is to buy a home within the next 12 months, putting money aside in savings may have a bigger impact than paying off a credit card or loan. Here’s why:

Savings help with your down payment, closing costs, and reserves
Lenders like to see that you have cash available—even if you don’t end up using all of it
You may qualify for down payment assistance or seller credits, which reduce how much you need to bring to closing

Having cash on hand gives you flexibility. And if you don’t use it all during the home purchase? You can always pay down your debt after closing.

[Source: https://www.hud.gov/topics/buying_a_home]

The Bottom Line

Every buyer’s situation is unique—but as a general rule, if homeownership is a near-term goal, saving cash is likely to have a greater benefit than paying off debt.

Still unsure? This is the kind of decision you shouldn’t make alone. Talk to a mortgage professional and have them review your full financial picture to give you a personalized strategy.

Sources for Further Reading: