With home renovation being typically a very expensive affair, people are often stuck trying to decide how to fund the expenses. A recent study released on https://www.valuepenguin.com reveals that increasingly, homeowners, especially millennials, are opting to pay for home renovations with their credit cards. According to the study, a mind-boggling $141 billion was charged to credit cards just to pay for home improvements in 2017, an increase of 69% over the corresponding figure in 2011. Given the profligate lifestyles of the young generation, it is not surprising for people to simply reach into their pockets for their credit cards if they are not able to pay the home renovation expenses upfront. However, as surprising as it may sound, even those who may have the cash make it a habit to use their credit cards because these cards permit a lot of freedom and added conveniences. Not only do you get the opportunity to earn reward point of extra miles on your favorite frequent flyer program but also you get the advantage of protection against botched renovation jobs or acts of fraud by contractors.

The Wisdom of Charging Large Home Renovation Expenses on Credit Cards

Whether you should be charging hefty amounts that are normally involved in home renovation to your credit card depends on a number of factors like whether your credit limit is large enough, to what extent your credit limit is available, what your repayment capability is, etc. If like most people, you are already burdened with a high card balance that is wearing you down with a steep rate of interest, using a credit card may not add any further joy to your life. If, however, you are confident that you will be able to pay off the full amount by the next statement date or within a short period, using your credit card to pay for large home renovation expenses can be a good way of earning reward points and cash back.

Pros and Cons of Using Your Credit Card for Paying Home Renovation Expenses

Credit cards represent the most useful way of purchasing something conveniently and immediately without your needing to find out whether you have enough cash. If you are an investor who has purchased a distressed property cheaply but does not have the cash to renovate it for a quick fix-and-flip transaction, a credit card can be very useful indeed. You do not need to deal with the painful bureaucracy of home renovation loan application by the bank but can purchase immediately whatever you need, whenever you need. However, the biggest argument against credit cards is that if you are planning to roll over the balances by paying only the minimum amount due by the statement dates, you will need to face the really steep APRs that credit cards usually have; typically, these range from around 22% to 27% for even customers with reasonably good credit scores. Carrying a large balance on your credit card means that your credit utilization ratio will invariably be more than the recommended 30% and this will tend to pull your credit score down further. Most importantly, the extra burden of repayment can put your cash flow under stress and could lead to your having to make adjustments to your lifestyle. A missed payment will lead to a hefty late payment fee and may attract a hike in the APR. If the high APRs of credit cards scare you, consider some of the more reputed online lenders like Nationaldebtrelief.com that can offer quick and easy loans at substantially lesser rates of interest.

The Best Cards to Use to Pay for Home Renovation Projects

There is a very wide variety of credit card to choose from multiple card issuers. The best thing to do is to pay off large renovation expenses with a credit card. There are some cards that will offer you a zero percent interest rate for an introductory period of one year or sometimes even more. Choosing this kind of a credit card enables you to take advantage of spreading the large renovation expense over a number of months without paying a single penny extra as interest. This prevents your cash flow from undergoing a systemic shock and permits you to lead your normal carefree lifestyle without any need to save extra to pay for the additional interest expense. You need to choose your card wisely and ensure that not only do get the longest-possible period free of interest but also no hidden clauses that charge you back the entire interest if you are not able to pay off the entire dues by the end of the promo period. Rather than the usual card issuers that are normally banks, you should scout around for store cards from large home décor retailer like IKEA, Lowe’s, Home Depot, etc. that offer extended interest-free periods as well as special discounts, more reward points, free shipping, additional warranty periods and a whole lot of freebies that carry a lot of value. Some card issuers offer a huge bonus in the form of reward points if you spend more than a specified amount during the first year or a specific number of months. If you are lining up a vacation, you could consider an airline card that lets you earn free miles with every purchase, however, be sure to examine all the terms and conditions and not get carried away by the freebies.

Conclusion

Even though conventional common sense and financial prudence would urge you not to charge your home renovation expenses to your credit card, it is not necessarily an evil option if you are careful. Choose a card with the lowest possible APR or a zero-percent APR card so that you can make a killing in saved interest expenses. Try to take advantage of the various offers and incentives that store cards or co-branded cards offer, however, exercise due diligence so that you don’t end up making a bad choice on account of the lucrative freebies.

Categories: Personal Finance

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