How to Renovate Your Home While Paying Off Debt

When you’re struggling to pay down debt, it can be difficult to consider any other financial obligations. If you’re a homeowner, though, other financial obligations always seem to crop up. While some renovations may be less “obligation” and more “desire,” if you’ve decided to make changes to your home, chances are it will be a costly endeavor. In fact, consumers spent an average of $7,560  on home improvements in 2018, according to HomeAdvisor. 

That hefty price tag can eat into your other financial goals, especially if you’re trying to pay down debt. With a little forethought, however, it’s possible to tackle those home improvements while keeping your debt in check. Here are some things to keep in mind. 

Step 1. Consider your motivations.

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Deciding whether your renovation is a necessity or will just make you feel better should be an important factor in determining whether it needs to happen right now, or if it can wait until you’ve made a bit more headway into paying off other debts. For example, redoing your kitchen floors because of damage from a water leak is a bit more urgent than updating them simply because you hate the pattern on your current tile. If you’re looking to renovate sooner rather than later, consider ways to cut down on your current debt payments — like by refinancing or consolidating your student loans.

If you’re still leaning toward making renovations for non-essential things, you should also think about whether you’re willing to sacrifice other financial goals in order to do so. 

“Renovations typically run over budget and can become extremely costly if issues such as mold or termite damage is found, which can quickly double a renovator’s initial budget,” said Jason Alderson, a CFP® and director of wealth management at Elbert Capital Management. “By bringing that to the renovator’s attention, I then ask them to prioritize which goals they will have to forgo if the project runs over budget.” 

Asking the would-be renovator these types of questions often causes them to place a value on the improvement they want to make, Alderson said. This, in turn, helps them decide if it’s worth it in the first place. If you’ll be left with inadequate emergency savings or will need to fund the renovations with the entirety of your home equity, it might be worth putting renovation plans on hold until you’re more financially stable.

Step 2. Create a budget.

Creating a renovation budget — with wiggle room — is essential for everyone, but especially for someone who is also working to pay down other debts. Make sure you have adequate resources to cover all existing obligations first, in addition to any renovation funding needs.

“A renovation budget can be calculated with an interior designer or contractor, but I always recommend that the renovator increase the budget they are provided by 25 to 50%, depending on the scope of the project,” Alderson said. Don’t forget that certain renovations may require you to increase your insurance coverage as well, so check with your homeowner’s insurance company to factor in that additional monthly cost. 

Your own research can help you feel empowered and get a sense for what certain renovations might cost before you even talk to a contractor. For example, the average cost of kitchen remodels was approximately $20,474, with the top expenses including cabinetry and hardware, installation, appliances, countertops and flooring.

Step 3. Come up with some ways to save.

Millennial woman puts money in piggy bank

If your renovation is a necessity, Alderson suggests checking in with your homeowner’s insurance company before making any moves. If it was caused by an issue out of your control — like water or insect damage — you may be able to get help from your insurer. There are deductibles and potential rate rises to keep in mind when it comes to homeowner’s insurance, but it doesn’t hurt to call and get the facts.

As far as other ways to save, Mindy Jensen, community manager at BiggerPockets.com and an expert home flipper, suggests considering how much is actually necessary to make a big difference. A fresh coat of paint, for example, is a great way to brighten up a room for significantly less money than a structural change. Updating old fixtures and handles is another low-impact way to make big visual change.

Other than that, if you can DIY any of the changes, you’ll likely save some money as well. If you decide to hire someone to do the project for you, “remember that contractors are generally less busy in the winter months,” Jensen said. “Some contractors are so busy [at other times] that they throw out ridiculous numbers — and if you’ll pay that much, they’ll find a way to squeeze you into their schedule. Always get multiple bids for a project.”

Step 4. Think about ways to bring in more income.

One relatively easy way to work a renovation into your debt-repayment schedule is to bring in a little extra cash to help cover it. If you have flexibility in the timing of your project, consider a side hustle to help you save for the renovation. According to a survey by The Hustle, the average side job can bring in about $25 dollars an hour for 11 hours of work each week. That’s not bad if you’re looking to avoid accumulating any extra debt.

Step 5. Check in on tax break opportunities. 

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It’s worth checking in with a tax advisor before settling on any renovations, as well. For instance, recent changes to tax law have impacted how much interest from home equity lines of credit is deductible. If you were counting on that deduction, not qualifying for it could make your renovations more expensive than you originally planned. 

On the flip side, certain energy efficient changes could actually net you some tax advantages. “When I purchased my condo, I needed to add additional insulation into the ceiling and the floor,” said Lou Haverty, a CFA and creator of Financial Analyst Insider. “I was able to finance 100% of the cost by getting financing with a local energy efficient loan through the state of Pennsylvania. The financing was for 100% of the cost, as long as I used a contractor that was approved within the program.” Government financing programs typically require much less in terms of income verification and credit scoring for approval. 

Taking on a renovation when you have other debts can be a tricky business, but it doesn’t have to be impossible. By doing some research, running the numbers and sticking as closely as possible to a budget, you could be lounging in your new Jacuzzi tub sooner than you think.