Home improvement projects you take on yourself almost always save money over hiring contractors to do the work for you. Even so, home repairs and improvements can be costly. Many people wonder whether they should finance their projects using credit cards or a home equity line of credit. Both methods have advantages and disadvantages, and you should select one based on your personal financial situation.
Home Equity Line of Credit for Home Improvement Projects
Using home equity to finance home improvement is common, with the general belief that it is a good investment because you are making improvements to increase the value of your home.
A home equity line of credit generally offers a variable interest rate tied to the prime rate. For people who are working on lengthy home improvement projects that require writing checks at various times, or multiple trips to the home improvement store - the home equity line of credit gives you access to revolving credit. In this sense, they are similar to a credit card, and you only pay interest on the amount of money you use (unlike a home equity loan, where you pay interest on the lump sum of money borrowed, whether you're actually using it or not).
Check with your lender before borrowing to see if they have minimum withdrawal requirements for using the home equity line of credit.
In some cases, a home equity line of credit used for home improvements may give you the opportunity to use the interest repaid as a tax deduction.
Credit Cards for Home Improvement Projects
Does it ever make sense to finance your do it yourself home improvement projects using your credit cards? It can make good financial sense if you use credit cards with home improvement rewards programs and you regularly purchase supplies for your do it yourself projects.
Many credit cards offer cash back on purchases made with the cards. Some offer a higher amount of cash back on purchases made within a select category, such as home improvement. If you can earn 3-10% cash back on the items you buy for your do it yourself projects, that's the equivalent of using 3-10% off coupons at the store and can add up to substantial savings on an annual basis. Still other credit card rewards programs let homeowners earn rebates on purchases for home improvement that are then applied to the cardholder's mortgage.
Families who routinely make repairs and improvements to their home would benefit financially from using credit cards offering home improvement related rewards programs, provided the balance was paid off in full within the grace period each month. Some of the credit cards with these rewards programs include:
- Home Advantage MasterCard from Bank of America
- Chase Business Rebate Visa Card
- Discover More Card
- Discover Student Card
Debbie Dragon is a writer for CreditorWeb.com, where she writes about credit cards, card rewards programs, and personal finance.
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