Why Homeowners Are Using Credit Cards To Finance Home Improvement?

There is a growing trend in financing home improvements with credit card funds. Credit cards are used to provide credit to users but the balances these cards carry can attract high interest rates. Credit card debt seems to be the most prevalent debt problems within consumers in U.S. surpassing the mortgage debts and student loan debts. However, with these credit card debt problems, there seems to one group of consumers that is determined to spend hundreds of thousands of dollars through their credit cards to carry out home improvements.

According to numbers released in a study by Harvard University Joint Center for Housing, it showed that homeowners spent more on home improvements in the year 2012 by 9 percent. Home improvement budget estimates are set to reach $110 billion in the year 2013 and this shows that there is a huge market for money to be spend out there.

Card issuers are targeting this market and they have come up with reward programs that help homeowners save money on their home improvement projects. Homeowners need to determine the right funding means to use to finance their home improvement projects.  They may use cash, personal loans, equity line of credit (HELOC), FHA Title I remodeling loan, contractor refinancing, or credit cards.

Whether you are doing an occasional home repair or a long term home remodeling project, the home improvement credit cards may be an ideal choice to fund your project. These cards are essential for those people who have regular purchases in their home improvements and building materials. This means that purchases of products like hardware, lumber, paint, wallpapers, cements, plumbing fixtures, and the like will get cash rebates or other forms of perks.

Credit cards are a good option in these kinds of projects because they have no closing costs, loan fees, home appraisal, credit check, and no need to use your house as collateral for the credit. Depending on the card you are using, you could earn discounts on building and construction materials and supplies, cashback, points, and airline miles.

However, not all persons may need to use these cards. There are the negative aspects of using credit cards to finance home remodeling and they include the possibility of increasing your debt load, high APRs which are as twice the interest rates offered on mortgages and home equity. The interest on these cards is not tax deductable and this is another disadvantage. Another problem is that running the card could lead to low credit score especially when you begin to experience late payment of the credit card balances.

You may also risk being subjected to spending limit cuts. However, the home renovation credit cards provides you with a credit amount that you can comfortably pay off fast especially the small projects or ongoing projects that will need regular spending on materials and supplies.

Many people are most likely to underestimate how long they will take to carry a loan and this can result to problems when using credit cards. As a senior researcher with the Center for Responsible Lending, Josh Frank points out, most people underestimate how long they will take to settle their loans and when the worst happens and they miss a few payments, the penalties can plunge them into financial pitfalls. Credit card late payments can attract interest rates of up to 35 percent.