America’s $1.2 Billion Mistake

America’s $1.2 Billion Mistake

at-risk-renovatorsWe’ve uncovered grim news for America’s 11,000,000 At-Risk Renovators: they overspend on renovations by at least $1.2 billion a year by swiping a credit card.

Our analysis, conducted between July 31 – August 1, casts light on a group of homeowners that hasn’t received much attention until now.

Who are At-Risk Renovators?

At-Risk Renovators are a group of homeowners uniquely vulnerable to financial disaster if an unexpected, urgent renovation comes up.

Let’s introduce the At-Risk Renovators and the dangers they face with a story.

After three years of living lean, a young couple saved enough to afford a down payment on a house. The house needed work, but it was still a home, a place to start a family. Nevertheless, a remodel was in the cards when the couple could save enough cash.

Unfortunately, the house had its own plans. 

Seven months after moving in, the couple walked into their basement gasped in horror as they stepped in a puddle of water. Their sump pump had broken, and now their basement was flooded.

The couple had no choice. The basement needed work now.

Their homeowners insurance, like all standard policies, did not cover sump pump malfunctions, so that option was off the table

A home equity line of credit (HELOC) or home equity loan was also out of reach because the couple had not yet accumulated enough equity in their home. (edited)

Unaware of other options and desperate for funding, the couple turned to a credit card–and braced themselves for the financial impact.

Credit cards lead many At-Risk Renovators to disaster because interest compounds daily after a 30-day grace period and APRs are often in the high double-digits. For example, if you owe a balance at the end of Day 31, your Day 32 balance will include interest accrued on Day 31.

At-Risk Renovators are uniquely vulnerable to financing emergency renovations with a credit card.

At-Risk Renovators have the following traits:

  • Least likely to have home equity (lowest 25% of homeowners): homeowners with low home equity cannot access cheaper financial options that require home equity as collateral.
  • Live in homes built before 2000: Older homes are more likely to require an urgent, unexpected renovation.
  • Likely to perform a home improvement project: These homeowners are especially likely to use a credit card.
  • The top 50% of credit scores: These homeowners may have other options available to them that they aren’t aware of.

How can At-Risk Renovators save $1.2 billion?

Short answer: take out a personal loan.

Personal loans are fixed-rate loans with rapid approval processes. These loans have higher APRs than options with home equity, but according to the Federal Reserve, rates are lower than those on credit cards. Interest also doesn’t accrue daily; monthly payments are the same throughout the loan’s repayment period.

For moderate to large emergency remodels, At-Risk Renovators who would turn to a credit card should use a personal loan instead.

Why? They’re cheaper.

Even if you assume that personal loans and credit cards have the same APR, and that you pay the same each month on both, daily compounding makes credit cards about $840 more expensive than a personal loan for a $20,000 remodel.

At-Risk Renovators are the most likely homeowners to resort to a credit card, but now they have a better option.

We used our proprietary data to determine that of the 63% of At-Risk Renovators who spend between $5,000 and $20,000 on renovations, 20% use a credit card. This is how we arrived at $1.2 billion in potential national savings.

America’s Top 10 Overspending States

#1: California ($219M)
#2: Florida ($68M)
#3: Texas ($66M)
#4: New York ($59M)
#5: Pennsylvania ($55M)
#6: New Jersey ($52M)
#7: Illinois ($50M)
#8: Washington ($50M)
#9: Ohio ($49M)
#10: Massachusetts ($44M)


At-Risk Renovators aren’t to blame for overspending on their projects.

Instead, they’re victims of a financial system that places a premium on hiding fees and squeezing money from consumers. For proof, look at any credit card ad and see how prominently the ad emphasizes daily compounding.

Consumers deserve better. And through reports such as this one, we hope to help homeowners make more informed financial decisions while upgrading their homes.

Data Sources

This report combined data from TransUnion, Experian, Facebook, and Hearth.