Why Online Debt Calculators Need To Be In Your ToolboxMay 12, 2018
With spring finally arriving it marks the beginning of home renovation season for many Canadian homeowners, but as you plan your reno don’t forget to add an online debt calculator to your toolbox.
Why do debt calculators matter when it comes to home renovations?
Last year, the Bank of Canada raised the prime interest rate not once, but three times! That doesn’t appear to be the end of it either, with some economists predicting it to happen two more times at least in 2018.
For Canadian homeowners with consumer debt, that could mean further strain on already tight budgets. As interest rates go up, so do payments on variable interest debt like credit card debt and HELOCs (home equity lines of credit). Any credit you may take out to cover home renovations may also cost more.
Results from our 2017 poll on home renovation and debt revealed that 40 per cent of those planning home renovations would likely use credit. That’s where online debt calculators can play an integral role in your home renovation planning.
Let’s say you’re borrowing to cover the cost of installing new windows or building a new back yard deck. Can you afford to make those credit payments and your mortgage payments if interest rates rise again?
Even if you can afford both should rates rise, it’s still good to sit down and analyze your personal finances and budget. Here are a few questions to think about when planning your home renovation goals this summer:
Is planned your home renovation a want or a need?
Will taking on renovation debt impact other important financial goals (paying off debt, saving for emergencies and retirement, funding your kids’ education, etc.)
Has your current debt load been negatively impacted by the recent interest rate hikes?
Already decided to go ahead with your renovation this summer? Take these steps to ensure that it doesn’t create a situation where you end up struggling to pay your bills.
- Estimate the entire renovation cost
Any homeowner that has ever tackled a reno knows, the final cost can vary drastically, so try to get estimates for everything you can. Factor in an emergency float of 15-25 per cent of the total cost into your home renovation estimates. This extra room in your budget can mean the difference between using cash or credit should you run into unexpected expenses.
- Add a renovation fund to your monthly budget
Compared to relying on credit, paying with cash can mean real savings for you. Here are a couple of very good reasons to add a renovation fund to your budget:
First of all, you’re not paying interest charges on borrowed money. Depending on how long it will take to pay off your credit card or home equity line of credit, those interest charges can really add to the cost of your project.
A second reason to save for a reno: according to our 2017 poll, homeowners who used credit spent, on average, about 55 per cent more on their reno project than those who didn’t borrow at all.
Here’s a handy home reno budget worksheet to help you out from Scott’s Reno to Reveal. Make sure to check out his site for even more useful financial home renovation resources!
- Focus on ways to reduce the debt you have
A debt consolidation loan is one way to simplify management of your debt. It brings multiple debts into a single debt – often with a lower interest rate than credit cards – and can reduce the overall amount you pay each month towards debt repayment. Speak with your lender about a consolidation loan.
If you’re unable to qualify for this type of loan, you can then explore other debt solutions with this online debt repayment options calculator.
Having debt doesn’t mean home renovations have to go by the wayside, but going about them in a financially responsible way can make the whole process more enjoyable; and even prevent you from feeling #HousePoor.
Make sure to review your finances, save as much as possible for your renovations ahead of time, and don’t forget to throw a couple of online debt calculators into your toolbox!
For more ideas on how to avoid taking on home reno debt, check out our blog.