Why You Need to Know Your Debt Options Before You RenovateJul 25, 2017
Renovating your new home vs. saving for retirement vs. paying off student loan debt…how do you balance your options? For new homeowners, doing all three can seem like an impossible task.
Paying for home renovations can mean making financial sacrifices for any homeowner. According to a recent BDO poll on home renovation and debt, about one in five Canadian homeowners planning a reno will neglect retirement savings to pay for renovations. Almost one in four admit they won’t pay off their debt as quickly as they should.
Millennial homeowners are most likely to borrow to renovate — 32 per cent will use debt (compared to 18 per cent of boomers). But when you’re a new homeowner, and likely already dealing with big mortgage debt, adding to that debt to renovate may not be your best investment.
The BDO poll shows that the average renovation debt will take 2.5 years to pay off. For new homeowners that can mean delaying the start of important goals…like saving for retirement or paying down student loan debt.
Instead of adding to your debt, prioritize paying off the debt you’ve already accumulated.
It is possible to save for retirement and pay off debt at the same time! It takes patience and a bit of research, but there are debt options out there. Let’s go through how you can get started.
If you’re going to free up income so you can save and pay off debt at the same time, you need to start with a budget. Your budget is essential to good financial health. Include all of your spending and expenses. Use apps like Mint to give you advice on where to save. Check in every couple days to record income coming in and spending going out.
When you get a sense of your cash flow, you might be able to find enough wiggle room for debt repayment and retirement savings.
Get assistance for your debt. There are so many debt repayment options to choose from — it’s just a matter of finding the one that will work best for you. A consolidation loan can combine your student loan debt and credit card debt into one loan payment. Credit counselling can help you retool your budget and decide on a DIY debt repayment strategy. A consumer proposal can help you resolve overwhelming debt.
Check out our debt repayment options calculator. This way, you can see what monthly payments would look like using each option.
If you can’t do both, learn which you should prioritize. This comes down to math. If the interest charges you’re paying on your debt are higher than the interest your earning for your savings, prioritize paying off your debt.
Whatever you decide, don’t be tempted by big spends that can set you back. If you want to make renovations, start a dedicated savings account. That way, you can have your new kitchen without dealing with debt options down the road.
Repay debt or save for retirement? Share your plan with others on social media by using the hashtags #DebtSolutions and #HomeReno.