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How to Pay for Home Improvement Without Piling on Debt

Couple renovating their home.

Debt isn’t necessarily your only option to improve your home!

The majority of people seeking to fund their renovation endeavors will choose a traditional loan. This is an institutionalized and highly acceptable method for obtaining the money that you require.

But why settle?

Do you honestly need the burden of additional debt? Who wants to live with a dollar sign hanging over their head at all times? That’s not financial freedom.

There are other opportunities out there that are just as beneficial (if not more), and will suite your specific situation brilliantly. Perhaps more people would seek out these financial opportunities if they were aware that they were viable options.

There are other ways to receive the much needed cash that you need without having to become indebted to a lender for the duration of your life.

DISCLAIMER:  The publisher of this site is not a certified financial planner or licensed broker. The information in this page is just that… information and not financial advice.


Tapping Into Your 401K
Payday Loans
Stocks and Bonds
Pay cash
Thinking Outside of the Box
Combine Funding Sources
The Definitive Guide to Home Improvement
How Much Can You Borrow for Home Improvement?

Tapping Into Your 401K

Many people think of a 401k as their go to option whenever the need for additional finances arise, but is it the best option for YOU?

You’ve worked your entire life and have accrued a substantial amount of money in your 401k, so obviously the thought of borrowing enough to complete your renovation project would pop into your mind. After all, it’s your money and it’s just sitting there.

What else would you need it for, if not to take it out and actually do something beneficial with it?

Borrowing from your 401k is relatively easy. Accessing your funds doesn’t even require a credit check because the remainder of the account serves as collateral.

For the most part, companies will cap the amount that can be taken out at 50% of the total vested account balance, or $50,000 (whichever is larger).

This may seem like an obvious solution to your money problem, but most financial experts warn that taking funds out of your 401k should be a last possible option, once all others have been exhausted. This may be for good reason.

The Fortune 100 financial services organization, Teachers Insurance and Annuity Association – College Retirement Equities Fund (TIAA-CREF), published a survey and found that 44% of adults that took out a loan from their workplace retirement admitted that they regretted their decision [1].

An additional 23% that were polled admitted that they didn’t regret their decision, but say they wouldn’t do it again.

For those that aren’t mathematically inclined, that’s a total of 67% of all people surveyed that would NOT take money from their 401k. Are you really willing to take the risk that you’re one of the other 33%?

So as far as the 401k is concerned, it may be best to keep that in your back pocket until you TRULY need it. If the time comes that you simply can’t resist the urge to borrow from your 401k to complete your renovation, just be forewarned, that you may regret it.

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Pay Day Loans

Also known as a “check loan” or “cash Advance” has become an increasingly popular way for people to gain the small sums of cash that they need in a timely fashion.

Typically, this sort of loan is for a small amount of money ($500 or less) and must be paid back whenever your next pay period occurs. However, there are lenders out there that will provide loans that can be paid back in installments, but at the risk of an incredibly high interest rate.

In general, the interest rates for a payday loan is exceptionally high, but add the risk to the lender of multiple payments and the interest rate could skyrocket.

Due to the widespread use of the internet, payday loans can be acquired within hours or even minutes of filling out an application online, which can come in handy for some.

Due to the low amount of money provided, and the staggeringly high interest rates, a payday loan may be best suited for use ONLY in an emergency. Let’s say that your toilet exploded and needs immediate attention because it’s leaking water everywhere, but you won’t have enough to pay for construction until your next paycheck comes in.

Obviously, you’re not going to allow your busted toilet to sit there spouting water all over your nice clean floor, right?

That is where a payday loan would come into good use! It would allow you to kill two birds with one stone, because not only would you receive the much needed help that you so desperately require, but you would also be able to pay the lender back within the month, allowing you to stay debt free.

You can find plenty of lenders online that will be willing to work with those that have less than ideal credit, but before you jump in with both feet, it’s always best to check out the credentials of your lender before agreeing to anything.

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Stocks / Bonds

The economy is beginning to go back to normal and stocks are again increasing at an accelerated rate, but who knows when the next financial disaster could occur?

Selling your assets to pay for a home improvement project is not necessarily a bad idea, as long you choose to sell the assets in context with your entire portfolio in mind. Making the decision what and when to sell is a complex subject and is not one that I can answer for you.

However, I can provide you with a bit of sage advice on what will help you in your decision making process. You’ll need to look at 3 things;

  1. The quality of your investment
  2. How this investment would impact your asset allocation
  3. How selling your asset would impact your taxes

As a good rule of thumb, if you look at an asset and wonder whether or not you would buy it today, then it is likely a good candidate to sell off.

You have money stashed away in the stock market or in bonds for a rainy day, so you may as well use them for something productive, such as a home renovation.

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The Good Ol’ Fashioned Way: Paying Cash

Oddly enough, the use of cash is at the bottom of the list of most popular methods to finance a home renovation. For some unknown reason, many think in the “here and now” and do not have the foresight to see how accruing some sort of debt could impact their life down the line.

For those that do have this sixth sense, they turn to cash. It’s immediate, it’s painless, and there is no debt to come back and bite you in the rear later in life.

Realistically, the most readily available source of funding can be found in your checking account, savings account, or in a certificate of deposit (CD).

There are no charges to use your own money, no additional fees from lenders that bog you down for years, and there is no interest to pay off that continues to accumulate while you sleep.

In my journey to discover the best possible method for financing a home renovation, I decided to turn to the experts to see what they had on their mind.

The first expert I reached out to was Joey Saul-Sehy. Joey is the founder of the website, Stacking Benjamins where he blogs about finance, appears bi-weekly on television as Detroit’s go to “money man”, and also hosts his own podcast.

Needless to say, Joey is the real deal. It also looks like Joey and I agree on the point of trying to stay debt free when remodeling. Here’s what he had to say…

“The #1 method, in my mind, to finance home renovations is to use your emergency fund. I know that sounds boring and like I’m ducking the question, but let’s look at this critically: unless you’ve already calculated the financial gains your renovation achieves you’re going to pay interest to a bank for something that might not increase the value of your home by more than the cost of your materials.

So I prefer to save up for the renovation and then come out of the project both guilt- and interest-free. BUT if you must renovate before you can accumulate funds, ask your bank about a building loan that will transfer into a home equity loan once you’re finished. This could make your home renovation tax deductible (check with your tax advisor) and also these types of loans are some the lowest interest loans available. If you have to go into debt, let’s make it the cheapest debt on the market!”

– Joe Saul-Sehy, co-host Stacking Benjamins podcast

It seems that Joey is not the only expert that feels that acquiring debt in return for a home renovation may not be the best possible solution.
The next expert I spoke to backed this sentiment. Teresa Mears is a renowned journalist. She’s been featured on some of the most prestigious media outlets such as US News and the New York Times (not to mention dozens of other quality sources). She’s also operates her own website called, Living On the Cheap.

Here is what Teresa had to say…

“Pay cash. Few home improvements are worth going into debt for. Save your money and, while you’re saving, research the best way to do your project for less.”

– Teresa Mears, Living on the Cheap

Clearly, the use of cash is an obvious first choice for financing you home projects. However, one of our experts actually had some added words of advice on how to obtain that cash without breaking the bank.

Like every other method, there are some drawbacks to using cash as well. For instance, according to the website, the average cost for renovating a kitchen is $54,909 and a simple bathroom remodel costing approximately $16,128, it’s no wonder why so many people are scared off by the thought of using cash[2].

For smaller projects, this is hands down the go to choice, but for larger projects, it may be more difficult to save enough to pay for your project.
Let’s be honest, who has that kind of money sitting around?

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Thinking Outside the Box

Johanna Fox Turner is a certified public accountant and the owner of Milestones Financial Planning LLC and also operates a website for those looking to hire a financial planner called, Fox & Co CPA.

Her advice was slightly different than the others…

“Some homeowners assume that mortgage interest is deductible only if it’s paid to a bank. That’s not so! One creative solution to finance home improvement debt is the “family loan”. Say you need $50,000 to add a new bathroom and also that your elderly parents have money sitting in the bank, maybe in a CD, earning less than 1%. They can loan you the money and earn more while you pay less than you would to the bank.

Voila, you’ve both made a good deal – and you can deduct the interest you pay them on your income tax return (assuming you itemize). Just be sure to document the terms of the loan and secure the debt with a mortgage contract in case something unexpected happens (you are sued or go through a divorce, for example). You can use an attorney or write the contract yourselves.”

– Johanna Fox Tuner, CPA

Why Choose Just One? Combine Funding Sources

The experts have spoken and are obviously leaning towards cash as the most favorable choice for a home renovation. However, that still doesn’t address the issue that most people simply don’t have $50,000 collecting dust in their bank account.

According to a research study published in 2012, conducted by the analytics department of Pittney Bowes , the average American savings account came to only $5,923. That’s significantly shy of the $54,909 required for a kitchen to be remodeled [3].

What’s even worse is that Bankrate conducted a study and discovered that 28% of people have absolutely no savings whatsoever, and another 20% claimed to have not had enough in their bank account to last 3 months without additional pay [4].

Obviously, simply using cash is not a viable option for many.

If you haven’t caught on by now, there are countless methods to acquire the funds necessary to remodel your home. Some methods will fit your needs while others haven’t.

Who says you have to use just one?

Wouldn’t it be advantageous to break up the total sum of your renovation to pay off as much as possible with cash and then finance the rest by whatever other method meets your needs?

This would not only help reduce the possibility of having a lingering debt hanging over your head, but would also help minimize the amount that you pay in interest and other additional fees. In the end, you’ll SAVE more money if you choose to use cash, even if you don’t have enough to fully bank roll your project until completion.

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[1]  TIAA-CREF. Borrowing Against Your Future Survey Executive Summary. June 18, 2014. [2] Cost vs. Value. 2014. [3]  Pitney Bowes. Savings Account Balances Decline for Residents in Four Electoral Swing States. October 22, 2012. [4]  Steiner, S. Many Americans have no emergency fund.

DISCLAIMER:  The publisher of this site is not a certified financial planner or licensed broker. The information in this page is just that… information and not financial advice.