Jumping on this home renovation trend could cost you

A construction worker remodels a home in Cambridge, Massachusetts.

Suzanne Kreiter | The Boston Globe | Getty Images
A construction worker remodels a home in Cambridge, Massachusetts.

Plastic might be a trendy component of your next home remodeling project. No, not as a design element — as a source of funding.

Last year, 1 in 3 homeowners paid for at least part of a renovation project with a credit card, according to a new report from home remodeling and design platform Houzz and financial services provider Synchrony.

The typical card payer spent a median $10,000 on renovations, and charged $1,500 to $4,800 of that total. Just 5 percent of homeowners used a credit card for their entire remodeling tab.

(The report was based on credit card usage data from Argus, as well as consumer responses from the annual Houzz & Home Study conducted this spring with Synchrony. That survey subset comprises 72,384 homeowners who renovated their primary residence last year, 10,602 of whom paid for a portion of their project with one or more credit cards.)

All told, the companies estimate, consumers used credit cards for $141 billion in home improvement products and services during 2017, a 13 percent increase from 2016.

The trend follows the larger pattern of consumers spending more on their credit cards, said Nino Sitchnava, principal economist for HouzzIt can be a smart move.

Many homeowners are using credit strategically, she said: 1 in 4 cited card rewards as a reason they paid with plastic, and 58 percent said they were taking advantage of a no-interest promotion. For 44 percent, credit was a lower-cost option compared to other financing avenues.

“We do still see that a typical renovating homeowner charges up to 25 percent of their renovation spend on a credit card,” she said. “Most aren’t using credit as their primary method of funding. They just take the edge off.”

Millennials were more apt to use a credit card to pay for renovations than older generations, with 41 percent doing so versus 34 percent of homeowners age 35 to 54. Younger homeowners were also more likely to use credit out of necessity, Sitchnava said.

“There aren’t that many financing options available to them,” she said — due to student loan debt constraining their budgets, or because as recent buyers they don’t have home equity to tap.

Using a credit card can be advantageous if you have the cash to quickly cover the purchase and take advantage of perks such as rewards or doubled warranties, said certified financial planner Richard Bergen, founder and president of RLB Wealth Planning in Garden City, New York. But if you’ll need to pay down the debt over time, compare all the financing options available to you.

In the Houzz report, 41 percent of homeowners put renovation purchases on cards incurring interest, and 1 in 4 had charged those purchases at standard card rates rather than using a promotional offer. (The national average APR clocked in at a record 17.07 percent in mid October, according to CreditCards.com, and the average rate for store-specific cards was nearly 25 percent.)

Depending on your credit and other elements of your financial situation — like whether you expect to itemize on your tax return and how quickly you expect to pay back the balance — options like a home equity line of credit or a personal loan could be less costly, said Bergen, who is also a certified public accountant.

It’s also important to scrutinize the terms of any promotional credit card offers, said certified financial planner Michael W. Kelley, founder and chief executive of Kelley Financial Planning in Cleveland. In particular, what happens if you don’t pay the balance in full by the end of that term?

With so-called deferred-interest deals, you could be responsible for interest on the full tab, dating back to the date of the purchase, he said.

Whether you’re charging renovations to rack up rewards or split up the bill into manageable payments over time, resist the urge to splurge. The average remodeling project recoups just 56.8 percent of its cost in added home value, according to Remodeling magazine’s annual Cost vs. Value report.

“Don’t over-exhaust your budget,” Kelley said.

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