How to Tackle Your HECS Debt and Still Build a Solid Home Deposit by Your Mid-30s
If you’re in your late 20s or early 30s, there’s a fair chance you’re juggling two big financial goals: paying down your HECS debt while also trying to scrape together a decent deposit for your first home.
It’s a common dilemma, the one I talk through with young Australians almost every week. The good news is, with a bit of strategy, you can make progress on both without feeling like you’re treading water until 40.
Here’s how I help clients in your shoes think about it.
Don’t rush to pay off HECS if it means draining your deposit savings
First things first: your HECS-HELP loan is not like a regular debt. It doesn’t attract interest in the traditional sense. Instead, it’s indexed to inflation once a year (last year’s spike to over 7% was unusual but a good reminder it’s not cost-free). More importantly, you’re not charged regular repayments out of your bank account like a credit card or personal loan.
Instead, repayments are built into your tax once your income passes certain thresholds. So aggressively paying it off faster than required often doesn’t give you much immediate benefit.
In fact, if you funnel extra money into paying off HECS rather than saving for your home deposit, you might delay buying a property and miss out on building equity sooner.
In most cases for young people, it’s more effective to:
Make the compulsory repayments via your tax, and
Focus extra savings on building your deposit and reducing any high-interest debts.
Avoid lifestyle creep to build your deposit faster
This sounds obvious, but it’s probably the biggest factor I see separating people who buy in their early 30s from those who keep pushing it out.
Most people start earning more through their late 20s and early 30s. Without a plan, it’s easy to let expenses rise to match. Instead, automate savings as if you’re still on your old income. Set up a separate offset or high-interest account linked to your future home, and divert that pay rise difference straight there.
Make smart use of the First Home Super Saver Scheme (FHSSS)
This is an underused strategy I regularly bring up with clients.
The First Home Super Saver Scheme lets you make voluntary contributions to super, up to $15,000 per year and $50,000 total, then withdraw them later (plus associated earnings) to use as a deposit on your first home.
The benefit? Those contributions are taxed at 15% going into super, which is often lower than your marginal tax rate. It can effectively boost your deposit with tax savings.
It’s a bit more paperwork and planning, but for many young Australians, it can add thousands to their deposit compared to saving the same amount in a normal account.
Clear personal debts first but be strategic with HECS
If you’re carrying credit card debt, personal loans or car loans, pay these down before worrying about making voluntary HECS payments.
Why? Because personal debt comes with high interest rates, impacts your borrowing power more harshly, and eats into cash flow. Banks will also look at your monthly commitments when assessing your ability to service a mortgage.
Meanwhile, as I mentioned earlier, your HECS is repaid via tax and generally doesn’t count against your day-to-day cash flow in the same way.
When does it make sense to pay extra off HECS?
There are some situations where paying extra off HECS makes sense:
If you’re approaching an income level that will tip you into a higher repayment bracket and you want to lower your mandatory deductions next year.
If you work in an industry with frequent short-term contracts and want to avoid large tax bills if your employer hasn’t withheld enough.
Or if you’re simply uncomfortable with the indexation and prefer the psychological benefit of clearing it.
But for most people, every extra dollar toward your future home deposit will likely give you a bigger long-term payoff.
Final thoughts: build a balanced strategy
At the end of the day, your 20s and early 30s are often about juggling competing goals. The best approach I’ve seen is:
Make your required HECS repayments through the tax system.
Prioritise clearing high-interest debts.
Automate savings into a dedicated home deposit account.
Consider using the First Home Super Saver Scheme to grow your deposit faster and with tax advantages.
If you’d like some help working out the right mix or seeing how your HECS might impact your borrowing capacity, I offer complimentary 20-minute sessions to go through your numbers and give you a clear action plan.
Book your session today and let’s make sure you’re set up to buy your first place without feeling strangled by student debt.
Related reading:
Visit Financial Wellness Hub for a complimentary session tailored to your goals.
By Brett Tarlington