Millennials Are More Likely to Use Credit Cards for Home Projects. Here’s How to Do It the Right Way

Your house is in desperate need of a new kitchen, but you don’t have the liquid cash to pay for it. Do you cook in the outdated space until you’ve stashed away enough to cover the renovation, take out a loan, or bite the bullet and put the whole project on your credit card? 

If you chose the third option, you’re in good company. According to a recent survey by home design resource Houzz of more than 140,000 homeowners/Houzz users over the age of 18, 37 percent of homeowners who renovated in 2018 put big renovation projects on their credit cards. Besides cash from savings, it was the most common way to fund home improvements. Home loans, cash from the sale of a previous home, tax refund, gift/inheritance, and insurance payout were all much smaller sources of funding. And this figure is likely growing—the same survey found that millennials are significantly more likely than baby boomers to rely on credit cards to finance renovations.

“People today look to use credit cards for bigger purchases, because many see it as an easier way to borrow money to fund a project or a bigger purchase,” says Dana Marineau, vice president and financial advocate for personal finance company Credit Karma. 

But is this a good idea? Here are a few considerations to keep in mind as you move forward.

“The key is to try to avoid spending beyond your means,” says Marineau. If you’re going to put these kinds of purchases on your credit card, it’s important to make sure you can pay your credit card bill on time each month to avoid racking up debt and damaging your credit score, she says. 

You should also consider your credit utilization rate, or the portion of your available credit you’re using, says Marineau. “In the eyes of most lenders, a person who constantly charges all the money they can—hitting or going over their credit limit on a regular basis—is more likely to have difficulty repaying that money. Those who keep their utilization percentage low generally have higher scores than those who habitually max out their credit cards.” 

Divide your total credit card balances by your total credit card limits. That’s your credit card utilization percentage, and Marineau says that most experts recommend keeping it below 30 percent.

If you have the available credit and know you can pay off your debt in a timely manner, Marineau says there’s no harm in paying for your project this way.

Consider using a credit card that offers an intro rate of 0 percent APR, she suggests. “This means you won’t be charged interest on new purchases for a certain period of time, so long as you make at least the minimum payments due on your statement.”  

As an added bonus, if you use a credit card to make a bigger purchase, you can often take advantage of rewards like a flight or cash back, says Marineau. If you’re smart about it, you may actually save money in the long run!