Q: Like so many of us, I spent most of my time at home due to COVID-19. So I decided to renovate my kitchen and have already received a $ 32,000 offer from a contractor. I have more than $ 50,000 in a savings account, but I also have a line of credit in my home for $ 120,000 with no credit. Should I use my savings on the kitchen reno or use the line of credit and pay them off over time?
A: Your unique financial habits and motivations will determine the best solution for you. Most people can either save well or pay off debts well.
If you save well, put as much money as possible in your savings account on a regular basis. They enjoy watching it grow and put together. Instead, if you are good at reducing debt then you hate to owe money and so develop a strategy to get rid of debt quickly. And you will be amazed when you see how the excellent balance gets smaller and smaller.
Both strategies are beneficial for financial success, but each of us is more likely to have one habit or another.
If you think you are in the saver category, use some of the funds in your savings account to renovate your kitchen.
You will have your new kitchen free and free, but you will be annoyed that your savings pot has been reduced. And that’s the good news. You will be instantly motivated to create a systematic savings plan to replenish that money.
The more it builds up, the more you will be forced to keep saving until you get back to where you started. The habit of saving persists and can even motivate you to keep going and expand your savings account even further. Don’t feel bad if you don’t earn interest on the money you withdrew for the Reno because you didn’t pay interest on that line of credit either. and you will start earning interest again as soon as you start replenishing your savings.
On the other hand, if you believe you are in debt relief, use your line of credit to fund your Reno.
You still have your new kitchen – just as you would have used your savings – but you will be annoyed that you are now in debt. Once again, your anger will work in your favor, inspiring you to immediately start a debt relief plan to release that line of credit. As you progress, the debt reduction habit also persists, motivating you to zero the line of credit as soon as possible. At this point, you can systematically redirect your extra cash into your savings account.
Obviously you have paid some interest in the time it takes to shrink the debt, and I can only hope this annoys you enough to keep going! But don’t forget, you earned interest on the money left in your savings account because you didn’t use it for the kitchen reno.
If you just can’t decide whether you are a better saver or a better debt eliminator, use the 50/50 strategy: get half the kitchen reno money from your savings account and use the line of credit for the other half . In no time at all, you will find that you are either more inclined to pay the line of credit or to top up your savings account. And then you will know which financial habit is important to you for future reference.
Before long, you’ll be boiling up a storm in your new kitchen knowing you’ve chosen the financial strategy that works best for you.