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Smart ways to pay for home improvements

With summer approaching many home improvements are in the planning stages or have even been scheduled.  Most of us are great at planning the project but often times how we are going to pay for the project is given little thought.  How we finance the project though can have very important implications for our overall financial picture.  And this planning will be extremely helpful in determining how big of a project we can really afford to tackle.
What are the different options for paying for home improvements?
Most people have access to three primary ways.  First, is to save all of the cost before completing. Second is using credit cards or personal loans as the funding sources. The final way people pay for home improvement projects is using some type of home equity loan.
If the project is smaller in scope, say a $7,500 deck, what would be the best options?
The best option would probably be the personal loan - it usually has a competitive rate and because it is a fixed term, your payment is fixed.  If you planned far enough in advance, start making those “payments” to yourself in the form of a savings account, then you can pay for some or all of the project with your own funds. The problem with using a credit card is that you have to be disciplined to make more than the minimum payment.
For larger projects such as refinishing a basement, what are the best financing choices?
The home equity loan is the best option. And likely a home equity line of credit would make the most sense because you won’t have to disburse all the funds at once.  Of course, a different approach might be to buy a house with a finished basement which might be the more economical and financially easier method to get your finished basement.
 Are there any other considerations in paying for home improvements?
The first one is the length of time you plan to stay in your house.  You don’t want to still be paying for a home improvement years after you have moved away. Another consideration is if there will be any tax advantages for using a home equity loan instead of a personal loan or credit card. If you really can’t afford the payment, save the money first before starting the project.  You don’t want the new deck to cause you financial difficulties.

Posted: 5/27/2014 with 0 comments

Categories: Money Matters, Planning

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