Three Essential Steps to Reduce Home Renovation Debt


A home renovation project can result in a space that is more functional and that has a more modern, fresh look. It can improve how your family uses the space, and it typically will increase your home’s value as well. If you are preparing to remodel or renovate your home soon, you may be concerned about the amount of debt that you will take on as a result. After all, it is more common for homeowners to finance most or all of their renovation project rather than to pay cash. Managing and minimizing this debt is essential, and these essential steps can help you to accomplish this financial goal.

Create an Affordable Renovation Plan

A common approach that some people take when renovating their home is to qualify for financing upfront. For example, you may apply for a home equity loan with plans to pay for the renovation with cash pulled out of your home’s equity. However, until you create a renovation plan, you do not know how much money is actually needed for this purpose. If your goal is to spend all of the financing money that you can qualify for, you understandably will take on more debt that you may need to. When you plan your renovation project before seeking financing, you can more easily control the amount of debt that you take on to finance your plans. Research the cost of the materials that you truly want in your home rather than that are the most expensive materials that you can afford with the amount of financing available to you.

Save for the Project

With planning and saving efforts, you can dramatically reduce the amount of debt that you take on when renovating your home. For example, if you are able to save $5,000 or $10,000 over the course of the next year or two, you can apply this money directly to your project and eliminate the need for a large portion of debt that you otherwise would need to take on. Delaying your renovation project for a year or two is not ideal when you are excited about improving and updating your home, but you may be more satisfied with the end result when you do not link the results with burdensome debt. Another way to save money long term, is switching out your electricity and buying solar panels for your home. This way you save on electricity bills and help the environment at the same time. Remember that many people take on debt because of impatience, and this is a bad reason to fall into debt that you may be required to make payments on for years or decades to come.

Explore Financing Costs and Options

Even when you save money for your renovation and offset some debt with your personal funds, you likely will still need to finance at least a portion of your project. Regardless of whether you need to contact mortgage companies, or other financing sources, you need to compare all of the options available. Use online calculators to estimate the true cost of financing. This includes the total interest charges over the life of the loan, the financing fees and more. Avoid being lured into the wrong loan program simply because it has a low interest rate. There are multiple factors that affect financing costs beyond the interest rate. A critical fact is the loan term. With a longer term, interest charges escalate. Choose the shortest term possible that still generates affordable payments.

While some debt is common with a home renovation, there are many steps that you can take to keep your related debt to a minimum. Remember that this debt may extend for 10 or 20 years or longer. This is a time period that may be longer than the overall appeal of the improvements that you make. A truly undesirable situation to be in is to need or want another home renovation while you are still paying off the last project. Spend time applying each of these tips to your preliminary planning and budgeting efforts to reduce related debt as much as possible.