Are You Sure You Can Pay Back Your Reno Debt?May 23, 2018
In this podcast, we discuss four things you should know about your personal finances before you take on a home renovation. Whether you can pay your debts is an important one.
A lot of Canadians make home renovation plans that are detailed in nature. They know what brand of flooring they want, what paint colour, and which room will be tackled first.
But not all home owners or home buyers are as detailed about their debt, or their ability to pay back their debt. That can have financial consequences like needing to seek debt relief.
Home renovation debt adds financial pressure
Home renovations are notorious for going over budget, sometimes by thousands of dollars. In our 2017 home renovation poll, we uncovered some startling statistics:
- Half of homeowners weren’t planning on creating a budget before starting their project.
- 40 per cent of homeowners were planning to use credit to cover some of the costs.
- Homeowners who would take on debt estimated they’d spend over 55 per cent more than those who paid cash for work done.
Those renovation costs can be tough to handle on their own, but for many households, the reno debt is only part of their debt story.
Canadians with families, who are already dealing with high living costs, account for half of the household debt in the country.
Reduce your debt to stay secure
There is some good news: Canadians are keeping up with their credit card payments. Delinquency rates are at 3 per cent. But average household debt continues to climb. It now sits at around $1.70 owed for each dollar of disposable income. Interest rates are also expected to continue to go up.
The best strategy for families with increasingly tight budgets is to continue to reduce their debt — and avoid taking on unnecessary debt. If your renovation isn’t an emergency, consider putting it off.
Your ability to pay your debt can be affected by a lot of factors, both in and out of your control. But one thing you can be certain of is that you can reduce your risk by avoiding unnecessary or unaffordable renos.
Which doesn’t mean you’ll never be able to renovate. Think about contributing regularly to a renovation savings fund so you’re able to pay for your future renovation upfront, without the stress of additional debt.
Check out Give Me Back My Five Bucks blog about debt fatigue. Sometimes being debt free can seem impossible, or exhausting, but Krystal’s strategies can help you keep your focus.