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It's Home Remodeling Season: How to Accomplish Your Goals While Keeping Your Debt in Check

If you need to finance your project, is there room in your budget to make the monthly payment on a loan?

July 19, 2021

Scrolling Pinterest certainly provides plenty of inspiration for updating parts of your home that no longer suit your style or don’t function as well as they did in their prime. Perhaps you’ve found your perfect bathroom, the vision you’ve had in your head. 

The makeover is, without a doubt, perfection. But the price tag? Not so much.

Home remodeling sticker shock can be, well, shocking, but it doesn’t necessarily mean a project is out of reach. With a little homework and discipline, it can be done as long as you keep your practical, budget-minded half in line with your “I want all the things!” half.

Here’s how to budget for home renovations on a budget that’s measurable, manageable, and best of all — doable.

Remodeling Your Home on a Budget

Regardless of your project’s size, a good first step is to do your research about materials and labor costs and estimating home renovation costs.

Start by creating a list of everything you’d like to do, even if you think you might not be able to afford it. You haven’t started yet, so allow yourself to dream a little here. Be as detailed as possible and even add the little things — if it will cost money, write it down. This list can include big purchases like appliances, flooring, tools, and paint to tool purchases like paintbrushes, safety goggles, and others you might need if you’re planning a DIY project. It’s a smart idea to include labor costs, even if they’re just rough estimates at this stage.

Use your list to do a little scouting, whether it’s online or at a home improvement store, writing down both the bargain and high-end prices for each item on your list. 

This might be a dream list, but from here you can make your project work within the reality of what you can spend.

Determining what you can afford

With this project cost information put together, you can now take a look at how it fits into the rest of your budget. If your cost estimates look like the project won’t be affordable within your current cash flow, and you don’t want to take on debt to complete it, you might need to adjust the plan. Will a budget-friendly renovation meet your needs? Can you compromise in places, spending less on some things and more on others?

One thing to keep in mind is that home renovation costs should not take priority over your other budgeted expenses. If you’re trying to pay down existing debt, adding on to that debt will make it more difficult to meet financial goals you may have set for yourself. 

Debt management apps like Tally can help you see your financial big picture easily by bringing all your monthly income and expenses together into one place. When you have a clear picture of what’s already coming in versus going out, you can have more confidence in knowing exactly what extras you can (or can’t) afford. 

Considering payment options

A recent survey found that while most Americans (71%) have a savings account, more than half have a balance of $5,000 or less. And if that money is set aside for true emergencies, like unexpected medical bills, you may need to consider options to finance something that’s more of a want than a need.

Paying cash

If you are able to pay cash up front, how much will it deplete your savings? And, how long will it take you to build that amount back to where it was? The best way to avoid debt is to pay cash, up front and in full. And if you’ve worked hard at saving your money so you can make it happen, that’s amazing news. Using all your cash will leave you less than liquid until you can rebuild your savings. (The general recommendation is to always have three months’ salary on hand in an emergency fund just in case, although the ideal goal is six months or more.)

Tapping your home equity

Do you have equity in your home that can be used as collateral for a loan or line or credit? If your home has equity, you may have the option of borrowing against its value in order to generate cash flow. A home equity loan and a home equity line of credit (HELOC) differ in funding and repayment terms, and each has its pros and cons. Much like applying for a promotional-rate credit card, be sure to do your homework and talk with your lender before taking this route. 

Using a credit card

Another option for financing could be a credit card that offers a low introductory APR. Some credit cards in this category offer 0% interest for six to 18 months. Having more than a year to pay on a debt, without interest during that time, can make a home remodel feel much more affordable if you can pay the debt in full before the promotional rate ends. But if you can’t, you’ll be on the hook for any remaining balance at the card’s regular interest rate.

Using retail financing

These types of promotional interest rates are sometimes also available via in-store financing, but they can be a bit riskier. Unlike credit cards, which only charge interest on any post-promotional balance left unpaid, in-store cards will often charge back interest (called deferred interest) if the balance isn’t paid in full before the end of the financing period. If the promotional period ends and the balance isn’t zero, you’ll be charged interest for the entire 18 months you’ve been paying down the debt. 

If you need to finance, is there room in your budget to make the monthly payment on a loan? 

To get to a realistic number, try this: Assume that the only cash you have to work with is your disposable income for the month — the money you’d otherwise use for dinners out, trips to the salon or a weekend getaway. If you were to eschew all those extraneous purchases, how much could you put toward the payments for a home renovation project each month? Also, ask yourself if you’re willing to forgo those nonessentials while you pay back a loan.

Keeping one eye on the prize and the other on your bottom line

Once you have a home renovation budget in place, it’s time to get to work. Just remember — demolition is fine in your workspace, but not so much in your wallet. As your project moves forward, it can be a good idea to revisit your numbers regularly to make sure you’re still on track. Regular budget reviews like this will allow you to make adjustments if you encounter hiccups along the way.

Here are some other ways to make sure to keep your home renovation costs under control: 

  1. Stick. To. The. Budget. You did all that hard work upfront, don’t let it go to waste down the line.

  2. If you have the skills, consider doing some of the work yourself. For example: Will the carpet company move furniture — for an extra fee? Having that job done by someone else might be easy, but doing it yourself is a way to save money and get some exercise! 

  3. If a project is too big to DIY or outside your scope of expertise, getting quotes from several contractors or handymen is a good way to make sure you’re getting the best value. Be sure the quotes are all for the same jobs or items so the comparisons are equal.

  4. Nothing can kill a budget faster than having to stay in a hotel during renovations or eating out for weeks on end while a kitchen is being torn out and put back together. Maintaining a livable space that’s outside of the construction zone will make it easier to keep your budget and your mind balanced.

  5. As much as possible, curbing other nonessential spending during the renovation will make the end goal that much more special. Stick to the essentials and put off the wants for later — maybe think of them as a job-well-done gift for when everything is finished.

Having a firm handle on a home renovation budget may not only keep you from spending too much, it can also let you know where you might have some wiggle room to spend a little more. 

Using a debt management app like Tally helps reduce all your credit card balances together in one place so you can see that wiggle room and put it to work to accomplish your goals.