How to Reduce Debt and Avoid Reno RegretApr 30, 2019
Millennials often have to make sacrifices in order to afford their first home. Already tackling tuition and consumer debt, many need financial help from family just to enter the housing market, and many take on fixer-uppers to keep initial costs lower.
This generation of Canadians definitely is not deterred by home renovations. In fact, recent data shows that millennials are spending more on renos and repairs than any other generation.
New builds and renovated homes are expensive, so fixer-uppers are common first homes for millennials. Home improvement is also a great way to personalize their living space and start building home equity.
But renovations carry financial risk, and they can quickly become sources of serious debt. But there are ways to help you avoid overextending yourself.
Here are some tips for planning a debt-friendly home renovation:
Make a renovation budget. Ask yourself these important questions: How much have you saved to put toward the renovation? Are you planning to use a line of credit or other type of loan? What will you do if you exceed your budget? Make sure that your budget includes some cushioning for unforeseen expenses. Having a strong contingency fund allows you to access cash for unexpected costs rather than taking on more debt.
Do your research. You can save a lot of money by pricing out materials online and in-store before you start shopping. Homeowners consistently budget too little for even the most popular renovation projects, like fences, doors and windows. It’s always better to err on the side of over-estimating the cost of your project. You may end up with money left over when your reno is finished, but that’s much better than accumulating extra debt.
Also, don’t forget to include finishing touches like fixtures and hardware. Those costs add up faster than you might expect, and could amount to additional unforeseen renovation debt.
Prioritize to keep spending manageable. Before you dive in to the big, expensive projects, consider low cost improvements first. By tackling some smaller jobs early, you can get the ball rolling and spruce up your home while delaying the major expenses as you pay down your debt.
Then, moving forward, it’s about finding a balance between your personal preferences and future resale value. And of course, this is a good time to consider wants vs needs. You may want stone countertops, but you need a working toilet. Make needs your first priority.
Stay away from those buy now, pay later plans. Home renovations tend to snowball, becoming bigger and more expensive as you go. Commit to sticking to your budget, and don’t be tempted to use those 12 month interest-free big box store offers if you run out of funds. You may find it helpful now, but unpaid credit card debt can incur some nasty penalties. Remember, installment plans are just another way to borrow money, rack up debt and end up owing more than you budgeted for in the end.
Before you consider financing your reno purchases through a retailer, find out what you should know about buy now, pay later plans from the Financial Consumer Agency of Canada.
Be realistic about what you can afford. Don’t compare your own home renovation project to television reno shows or new model show homes. Your home should be a reflection of your personal taste, at your current net worth. So wherever you are in life, make it yours.
Contractor reputation is key. Don’t get swindled – ask for help when hiring contractors. Referrals are one of the best ways to ensure you get high quality workmanship at a competitive price. Reputable businesses will be easily found online, will be willing to come to your home, and provide a price quote before you get started.
But even so, remember that businesses can go belly-up, right in the middle of your renovation. So be mindful of how large your project is and how much you put up front. Try to keep the cost — and the risk — low whenever possible.
Home renovations can be stressful but they can also be exciting for first-time homeowners. Remember to research, plan and ask for help and referrals from people you trust, and you can look forward to improving both your home and your debt load.
If you are a millennial tackling your first home renovation, we want to hear about it. Start a conversation online. #LeaveDebtBehind #Housing #Millennials