Looking to remodel the dated, dreary kitchen in your home or the pink-tiled bathroom that was sold to you as a charming “period detail”? Increasingly, homeowners are jumping into home renovations and paying for these updates with credit cards, according to a recent study by the home renovation platform Houzz and Synchrony, a financial services company.
While this may be good news for credit card companies, it’s less so for homeowners, who collectively charged $141 billion to their credit cards for home improvements in 2017, up 69% from 2011. Of the 150,000 homeowners surveyed, it turns out millennial homeowners (those aged 25 to 34) were the most likely to use a credit card to pay for home renovations, with 41% using their cards. By comparison, only about a third of Gen-Xers (34%) and Boomers (30%) used credit cards for this purpose.
Is using credit cards to pay for home renovations a good idea?
Most experts agree, charging your credit card for expensive home renovation projects usually isn't recommended. The median cost of home renovations was $10,000, but homeowners typically only charged $1,500 to $4,900 to their credit cards, according to the survey. Still, carrying a balance on your credit card can cost you an extra 15% to 20% annually if you don't pay it off by the end of your statement period, not to mention the damage it does to your credit score.
While you could sign up for a new credit card with an enticing 0% APR introductory offer, with the idea of paying off your debt before the grace period ends, it can backfire. "If you start playing the 0% APR game and hoping to pay for something you can’t afford, things can turn ugly quickly," said Robert Harrow, ValuePenguin's senior credit card analyst. "All it takes is one unexpected financial emergency, like a car accident or an unexpected illness, and your well-crafted plan falls apart." In fact, Harrow says borrowers frequently forget about their introductory period end-dates and fall into credit card debt, a claim which is backed up by a 2015 CFPB report.
If you already have the money to pay for your renovation, then it may be an excellent time to open a new card, said Lou Haverty, CFA at Financial Analyst Insider. Signup bonuses can be worth as much as $1,350—if you spend enough on the card within the introductory period.
But even with the cash in hand, you should carefully consider whether taking on debt makes sense. "In general, you might want to consider using a home equity line for home renovations instead of a credit card," said Haverty.
The benefit of a home equity loan vs. credit card
Home equity loans allow you to use your equity in the home as secured collateral against the loan. And because it’s a secured loan, you'll receive a much lower interest rate than the APR on your credit card, among other benefits. One upside: If you already own a home and plan on staying put, Haverty says, “the home equity interest for home renovations are likely [going] to qualify as a deductible on your taxes."