Credit Cards

35% of homeowners plan to use credit cards to pay for home improvements. Here’s why that’s a mistake

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There are better ways to finance a renovation.

Key points

  • New data reveals that 44% of homeowners plan to renew this year.
  • Unfortunately, a large portion of homeowners could spend more money than necessary in the course of financing that job.

Since the start of the pandemic, many people are spending more time working from home. In fact, some people have plans to work from home permanently. That, in turn, has helped drive interest in renewals.

In a recent LightStream survey, 44% of homeowners say they want to renew this year. But 35% say they intend to use a credit card to pay for renewals. That could be a potentially dangerous move.

The problem with credit card balances

It’s one thing to charge the cost of a home renovation to a credit card and pay for it right away. Doing so could be a smart move, as it could earn you a nice amount of cash back or rewards points.

But charging home improvements to a credit card and paying off that balance over time isn’t a great decision. Credit cards are notorious for charging large amounts of interest on balances that are transferred. In total, your renewal could end up costing you a lot more money than anticipated if you use a credit card to pay for it.

Also, too high a credit card balance could cause your credit score to drop. Once that happens, loans could become more expensive the next time a need arises.

A better way to finance home renovations

If you’re looking to spruce up your living space and can’t pay for the job outright with cash or savings, then it’s worth exploring different renovation financing options before looking into a credit card. First, you might consider taking out a personal loan, which allows you to borrow money for any reason. Personal loans tend to charge considerably less interest than credit cards. And they’re a good bet if you’re an applicant with a strong credit score.

Another option, if you have a decent amount of home equity, is to borrow against it through a home equity loan or line of credit. Both options tend to have affordable interest rates, although they are a bit different. With a home equity loan, you borrow a lump sum like you would a personal loan and pay it back in equal installments over time. With a home equity line of credit, or HELOC, you gain access to a line of credit that you can draw on over time, typically lasting five to ten years.

If you’re not sure what you’ll end up spending to renew, a HELOC might be a good option, as it gives you the flexibility to start borrowing less and increase that amount as needed. But when you take out a HELOC, you will generally be charged a variable interest rate on the amount you borrow. This means your payments may not be as predictable as they would be with a home equity loan.

Either way, it’s worth exploring different loan solutions before turning to a credit card to finance your home improvements. Doing so could save you a good deal of money, not to mention keep your credit score from taking a hit.

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