Let’s face it: you’ll remodel your home at some point during your life.
Perhaps you’ll want to add a bit of flare to the kitchen in your new home. Maybe you’ll find mold in your bathroom wall and spring for that new vanity during your repairs. You may just decide it’s finally time to upgrade your living room.
But while selecting the designs may come easy, remodels are a huge investment of your time and money. Don’t you want to get it right?
That’s where this article can help.
We’ll teach you how to avoid a costly mistake many homeowners make while renovating – one that you rarely see discussed on HGTV. Throw on your detective cap and see if you can spot this top renovation mistake in this story:
A Remodel Gone Wrong: Meet Brooke and Ben
Brooke and Ben’s lives changed forever during one sunny summer afternoon. The couple learned that, in nine months, they would be parents.
There was a lot to do in those nine months: pick a name, plan a baby shower, and prepare their house for its new member. Brooke and Ben needed to expand by adding a bedroom. Their family room and kitchen would also need work to become baby-friendly.
Brooke and Ben created a game plan.
Adding a bedroom to serve as a new nursery would take the longest, so that’s where they planned to start. After browsing several online sites and looking at neighbors’ homes, Brooke and Ben had a good idea of what they wanted the baby’s bedroom to look like.
The couple next brought in a couple contractors for estimates, and learned a new bedroom would cost about $20,000. From constructing new walls to adding carpets to installing lights, there was a lot to do!
With multiple estimates in hand, Ben and Brooke next had to figure out how to pay for their project. They didn’t have $20,000 in the bank, but also didn’t have time to save. The couple knew they’d have to turn to financing options.
A payment option that required home equity was quickly taken off the table. Since they had bought a new home last year, they hadn’t build up enough equity for secured loan options. The long approval process also made a home equity loan or line of credit impractical.
Ben and Brooke then turned to a credit card.
It was so easy to swipe: their card even offered a teaser 0% annualized percentage rate. They could pay for the baby’s new bedroom without incurring interest for a year. Plus, there were no lengthy bank applications.
The 0% interest proved hard to resist. Brooke and Ben started to use their credit card for everything. They needed it for new baby clothes, the crib they fell in love with, and the pile of expenses that came with baby proofing their kitchen and living room.
As time passed – and the due date grew closer – Brooke and Ben struggled to meet their credit card payments. Their monthly payments grew. With so much on their plate, it was hard to keep up with their rising credit card debt.
And once Brooke and Ben became new parents, they felt even more underwater in meeting monthly payments. Unable to pay for their project in the 12 month 0% APR period, Brooke and Ben now had 15% interest on their $20,000 new bedroom. They hadn’t noticed either that their card had an extra hidden transaction fee. Behind on their payments, their credit score slowly suffered.
Where Did Brooke and Ben Go Wrong?
Did you notice Brooke and Ben’s mistake?
They used a credit card for hefty home improvement purchases, including their renovation.
If you didn’t catch the mistake, you’re not alone. According to the 2020 Houzz and Home Report, 38% of homeowners charge their renovations to their card.
Credit cards can be dangerous options for large projects, as Brooke and Ben found out. Interest rates on credit cards are at an average high of 16.12%. That’s among the highest of any home improvement financing option.
The average card in 2020 was subject to 6 hidden fees that most users don’t know about. For Brooke and Ben, they only incurred one transaction fee, but other people may be subject to late charges or more.
There are other risks that come with credit cards. Not all cards offer a 0% APR period, which means interest accrual begins at the time you swipe. Some contractors may also incur credit card fees and pass high charges onto you, which often outweigh the benefits from rewards points.
It can be tricky deciding which payment option to use for your remodel.
Our homeowner’s guide to home improvement loans, informed by personal finance experts, gives you more details on various financing options for your remodel, like personal loans, FHA loans, and more.