The 4 Smartest Ways to Pay for Home Improvements in Retirement

Now that you're home more after retiring, you may notice things you'd like to change. The changes you envision could range from painting to gutting a room and starting over with a remodel. Given that the average kitchen remodel ranges from $14,000 to $42,000 and a bath remodel is likely to range from $6,000 to $24,000, the big question is how to pay for it.

Being retired may mean you have time to do the things you want to do (when you want to), but it also means always keeping one eye on the budget. In this case, you'd want to find the best, most cost-efficient way to pay for the upgrades to your home. Here are four ideas.

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1. Personal savings

Not to sound too much like your parents or grandparents here, but cash is typically the way to go. After all, paying cash for home improvements means paying $0 in interest. Plus, there are several other advantages to pulling the money from somewhere like savings or a certificate of deposit (CD):

• Time is on your side: If you're saving up money specifically for this project, you have plenty of time to decide what you really want. After months of scanning magazines and looking through home improvement stores, you'll have a clear picture of your dream room. Simply put, there's less chance of buyer's remorse.
• Instant equity: If you choose a project that offers a high return on investment (ROI), the value it adds to your home means 100% of the increased equity is yours -- immediately. You don't have to wait to pay off a loan.
• No credit needed: There's no effect on your credit score. By paying cash, you don't have to worry about an increase in credit utilization because there's no credit involved.

2. Use investment income

Another way to pay for improvements without going into debt is to use income earned from investments. Whether you typically reinvest interest and dividends or spend them, that cash could help fund any improvements you want made to your home -- without taking on new debt.

3. Look at contractor payment plans

Some contractors -- particularly those who've been in business for a while -- offer payment plans. If yours does, compare the interest rate on their payment plan to the rate on a personal loan. If you can snag a low-interest loan and the payments fit neatly into your household budget, it might be worth a second look. This is especially true if your project increases your home's equity.

4. Promotional rate credit card

If you have a strong credit score, you could qualify for a credit card with a 0% promotional rate. Here's how it works:

• Most promotional rates last between 12 and 24 months.
• During that period, you make regular payments at 0% interest.
• Once the promotional period expires, interest reverts to the standard rate.

The fact that interest reverts to the standard rate means you'll want to pay the card off in full before the promotion expires. Let's say you spend $8,000 having your kitchen cabinets painted and new countertops installed. And for the sake of this scenario, say the promotional period lasts 20 months. By making equal monthly payments of $400, your kitchen project will be paid for in 20 months, and you'll never pay a penny in interest.

Things to keep in mind

Check first for needed repairs: Before making decorative changes to your home, focus on safety. If anything needs to be repaired, now is the time to do it. Not only will you live in a safer space, but a functional home is more valuable.

Collect multiple bids: Prices can vary dramatically. Check with multiple licensed contractors to determine which one offers the best value. You also want a contractor who listens to you and respects that this is your home, and the final decisions are yours to make.

If you think you might sell the home, keep an eye on ROI: Choosing the right projects can instantly increase your home's value. For example, installing a new steel entry door has an ROI of 216%, and a minor kitchen remodel has an ROI of 113%. While some projects aren't known for terrific ROI (we see you, walk-in closets and in-ground swimming pools), choosing the right improvement projects can ratchet up your home's value.

DIY to your heart's content: One of the least expensive ways to make home improvements is to do part of the work yourself. For example, if you once worked as a plumber, chances are you could easily pull off another plumbing job in your own home. If you love painting or wallpapering, take on those tasks yourself.

Whether you're collecting Social Security or a pension, or have some other kind of retirement income, paying for home repairs without going into high-interest debt is a win/win proposition. Whatever you do, it's your personal space -- take time to enjoy it.

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