Home renovation

Putting your next home improvement on a credit card could cost you

A construction worker renovates a house in Cambridge, Massachusetts.

Suzanne Kreiter | The Boston Globe | Getty Images

Plastic could be a hot item in your next home improvement project. No, not as a design element — as a funding source.

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 renovation and design platform Houzz and financial services provider Synchrony.

The typical card payer spent an average of $10,000 on renovations and billed $1,500 to $4,800 of that total. Only 5% of homeowners used a credit card for their entire renovation bill.

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

In total, the companies estimate that consumers used credit cards for $141 billion in home improvement products and services in 2017, a 13% increase from 2016.

The trend follows the broader pattern of consumers spending more on their credit cards, said Nino Sitchnava, senior economist at Houzz.. It can be a smart decision.

Many owners use credit strategically, she said: 1 in 4 cited card rewards as the reason they paid with plastic, and 58% said they were taking advantage of a promotion without interest. For 44%, credit was a lower cost option compared to other financing methods.

“We’re still seeing a typical remodeling homeowner charge up to 25% of their remodeling expenses to a credit card,” she said. “Most don’t use credit as their primary method of financing. They just take over.”

Millennials were more likely to use a credit card to pay for renovations than older generations, with 41% doing so compared to 34% of homeowners aged 35-54. Young homeowners were also more likely to use credit out of necessity, Sitchnava said.

“There aren’t a lot of financing options available to them,” she said — because of student loan debt that limits their budget or because as recent buyers , they don’t have the equity in their property to exploit.

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

In the Houzz report, 41% of homeowners place home improvement purchases on interest-earning cards, and 1 in 4 charged those purchases at standard card rates rather than using a promotional offer. (The national average APR hit a record high of 17.07% in mid-October, according to CreditCards.com, and the average rate for store-specific cards was nearly 25%).

Depending on your credit and other elements of your financial situation – such as whether you plan to itemize your tax return and how quickly you expect to pay off 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 carefully review the terms of any promotional credit card offer, said certified financial planner Michael W. Kelley, founder and managing director of Kelley Financial Planning in Cleveland. In particular, what happens if you don’t pay the balance in full at the end of that term?

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

Whether you’re billing for renovations to rack up rewards or splitting the bill into manageable payments over time, resist the urge to splurge. The average remodeling project recovers only 56.8% of its cost in added value to the home, according to Remodeling magazine’s annual Cost vs. Value report.

“Don’t stretch your budget too much,” Kelley said.