(New here) Thoughts on renovating a fixer upper vs. paying down debt

katylady09 · August 2014

Hi! I read this board every once in a while--so motivating! Hope you don't mind me asking a question.

I was wondering if any of you had experience with paying down debt or even saving for an e-fund, investing more, etc. while renovating a fixer upper?

My DH and I bought a house that needs a lot of work about a year and a half ago and took Financial Peace 6 months later. I know there are a lot of Dave fans on here, and I do agree with most of what he says, but we feel stuck because we want to make this house a home for our growing family. Our house is by no means huge, and we do ALL of the renovations ourselves for as cheap as we can (my husband is quite the handyman and we both really enjoy doing this--we have yet to hire out), but I can't get Dave Ramsey out of my mind every month.

I would really appreciate any advice!

jlaOK · August 2014

I would consider home renovations as baby step 3b (where Dave would say to save to buy a house). The only exception to this would be if your house wasn't functional (i.e. no kitchen, bathrooms, etc.) How long would it take for you to complete baby steps 2 and 3 if you don't save for renovations? If it's only a couple of years I wouldn't mind waiting, especially knowing I'd be able to get exactly what I want when it comes time to do them.

Xstatic3333 · August 2014

This is an "it depends" to me. I'm not following DR's plan myself. I think he has good advice on many things and is definitely entertaining, but we've found different goals that work for us. If you're 100% committed to following TMM, I think that would mean sticking to safety and structural repairs only until you're done with baby step 2.

That said, if your debt is, say, a couple of reasonable, low-interest SL or car payments, I don't think there is anything wrong with taking a slower approach and paying them down while also working on retirement and saving for renovations. There are a bunch of us taking that approach around here. I really don't think either approach us wrong, it's just about deciding what's right for you and your family. It will make getting debt-free take longer, but you may be okay with that. Either way is better than having no plan like far too many people!

*Disclaimer: if you're drowning in high-interest consumer debt I'd pay that down before any optional renovations.

hoffse · August 2014

Xstatic3333 said:

This is an "it depends" to me. I'm not following DR's plan myself. I think he has good advice on many things and is definitely entertaining, but we've found different goals that work for us. If you're 100% committed to following TMM, I think that would mean sticking to safety and structural repairs only until you're done with baby step 2. That said, if your debt is, say, a couple of reasonable, low-interest SL or car payments, I don't think there is anything wrong with taking a slower approach and paying them down while also working on retirement and saving for renovations. There are a bunch of us taking that approach around here. I really don't think either approach us wrong, it's just about deciding what's right for you and your family. It will make getting debt-free take longer, but you may be okay with that. Either way is better than having no plan like far too many people! *Disclaimer: if you're drowning in high-interest consumer debt I'd pay that down before any optional renovations.

I agree with this. We bought a significantly less expensive house than we could afford because we are willing to put some money into it to fix it up to be consistent with what we want. Could we pay off a loan with that money? Yes. But H and I also know that our happiness is dramatically affected by our living space, and the investment we make on this house should come back to us - plus more - on the back end when we sell. Besides, we have so much low interest student loan debt that it's effectively a second mortgage for us. Paying off $15,000 of SL debt isn't going to do much, whereas putting that $15,000 into the house will make us content to stay there longer.

We are on the 7-8 year plan, and our student loans should be done by then anyway because we're going to start snowballing our car payment when that is done (we had a 36-month loan for that). We're satisfied with that timeline, and rushing it along to save a year or two means sacrificing things we just aren't willing to sacrifice.

I will say that our loans aren't a problem for us. We can afford the house and all of our loans on a single income, so we aren't really in a position where paying it off faster means freeing up money to be able to survive in the case of job loss or some other emergency. I think that if our loans were really something that had a huge affect to our bottom line, I would focus more on paying those down to give us breathing room.

formerlyGDaisy09 · August 2014

hoffse said:

Xstatic3333 said:

This is an "it depends" to me. I'm not following DR's plan myself. I think he has good advice on many things and is definitely entertaining, but we've found different goals that work for us. If you're 100% committed to following TMM, I think that would mean sticking to safety and structural repairs only until you're done with baby step 2. That said, if your debt is, say, a couple of reasonable, low-interest SL or car payments, I don't think there is anything wrong with taking a slower approach and paying them down while also working on retirement and saving for renovations. There are a bunch of us taking that approach around here. I really don't think either approach us wrong, it's just about deciding what's right for you and your family. It will make getting debt-free take longer, but you may be okay with that. Either way is better than having no plan like far too many people! *Disclaimer: if you're drowning in high-interest consumer debt I'd pay that down before any optional renovations.

I agree with this. We bought a significantly less expensive house than we could afford because we are willing to put some money into it to fix it up to be consistent with what we want. Could we pay off a loan with that money? Yes. But H and I also know that our happiness is dramatically affected by our living space, and the investment we make on this house should come back to us - plus more - on the back end when we sell. Besides, we have so much low interest student loan debt that it's effectively a second mortgage for us. Paying off $15,000 of SL debt isn't going to do much, whereas putting that $15,000 into the house will make us content to stay there longer.

We are on the 7-8 year plan, and our student loans should be done by then anyway because we're going to start snowballing our car payment when that is done (we had a 36-month loan for that). We're satisfied with that timeline, and rushing it along to save a year or two means sacrificing things we just aren't willing to sacrifice.

I will say that our loans aren't a problem for us. We can afford the house and all of our loans on a single income, so we aren't really in a position where paying it off faster means freeing up money to be able to survive in the case of job loss or some other emergency. I think that if our loans were really something that had a huge affect to our bottom line, I would focus more on paying those down to give us breathing room.

I agree with all of this.

we bought a starter home, that didn't need a lot of safety/structural work, but we've chosen to put a lot more work into it to make it a home we're happier with, which also means that we'll probably feel comfortable staying in the home longer than if we didn't do a lot of work on it (and by default building more equity be making more mortgage payments).

We did deal with the CC debt my H build-up before we met before we undertook any costly projects around the house (though 6 months after paying those off we've put on a new roof, and installed massive gardens). The only debts we have remaining are a handful of student loans ($55K total, $13K has interest in the 5.8-6.8% range, the other $42K is in the 1.35-5.25% range) we're focusing a little on the slightly higher interest portion, but figure that we're not losing a whole lot by going crazy paying off the other loans, given the opportunity cost of giving up things like travel or putting off projects that will make us want to stay in our home longer.

Would it be nice to not have those minimum payment obligations every month, yes! but we have the wiggle room in our budget so that obligation is not too much of a burden. We also have a car loan with a very reasonable rate (1.99%), we plan to drive the car for a long time, so there is little benefit (besides losing the monthly payment) to paying it off early...we'll probably end-up paying it off 3-4 months early when the final balance is lower.

as we pay things off, we're planning to snowball, but ultimately we decided that there isn't a lot of benefit to dumping our extra cash into low-interest rate loans when that would mean loosing the opportunity to travel or renovate our home for the 2-3 years we'd need to do that to pay off the loans and the car.

Excluding any high-interest debt, I think if you and your H have a plan you're both comfortable with, that's the best thing.

katylady09 · August 2014

Thank you so much, girls!

jlaOK Our house is definitely functional without renovations….just extremely outdated. I am a very visual person (I work from home as a graphic designer and would one day like to open an interior decorating business once my kids are older), so it's just hard to live with on a day-to-day basis.

That is why we are torn! If we didn't save for renovations and followed baby steps exactly (I would have to stop saving for my kiddos college), we could have steps 1 and 2 completed in about 4 years.

katylady09 · August 2014

Xstatic3333 said:

That said, if your debt is, say, a couple of reasonable, low-interest SL or car payments, I don't think there is anything wrong with taking a slower approach and paying them down while also working on retirement and saving for renovations. There are a bunch of us taking that approach around here. I really don't think either approach us wrong, it's just about deciding what's right for you and your family. It will make getting debt-free take longer, but you may be okay with that. Either way is better than having no plan like far too many people! *Disclaimer: if you're drowning in high-interest consumer debt I'd pay that down before any optional renovations.

Thank you! I have a student loan (about 18k left) and we have one car payment (about 14k left) so it's not completely terrible or anything. We do have about $2500 on a credit card (this was a dumb purchase--wood floors for the house because we were too impatient to wait), but that will be paid off by Christmas..maybe before if my husband gets a big bonus. It would be paid off now, but I am pregnant and due in October and we want to get hospital expenses saved for first.

Good perspective! I just see people who are "gazelle-intense" and it makes me feel guilty for wanting to create a nicer home first.

brij2006 · August 2014

I haven't read the other responses, but we bought a foreclosure that needed a lot of remodeling 5 years ago. Now we are doing Dave Ramsey's plan, and we have 2 rooms left to finish. We are expecting, so we are finishing the baby's room off and cash flowing that in our monthly budget. We are finishing it for less than $500 and are not doing anything fancy to it.

Other than that, house projects are put on hold while getting out of debt. That is the #1 priority. The more money you pull from paying off debt, the longer it is going to take you to get out of it.

The way we look at it, once we're debt free we will have so much more money in our monthly budget that we can remodel the home to the standards we prefer, and we then won't have to worry about it taking us longer due to budget constraints.

Wait to remodel, focus on the debt.

katylady09 · August 2014

hoffse said:

We bought a significantly less expensive house than we could afford because we are willing to put some money into it to fix it up to be consistent with what we want. Could we pay off a loan with that money? Yes. But H and I also know that our happiness is dramatically affected by our living space, and the investment we make on this house should come back to us - plus more - on the back end when we sell. Besides, we have so much low interest student loan debt that it's effectively a second mortgage for us. Paying off $15,000 of SL debt isn't going to do much, whereas putting that $15,000 into the house will make us content to stay there longer.

We are on the 7-8 year plan, and our student loans should be done by then anyway because we're going to start snowballing our car payment when that is done (we had a 36-month loan for that). We're satisfied with that timeline, and rushing it along to save a year or two means sacrificing things we just aren't willing to sacrifice.

I will say that our loans aren't a problem for us. We can afford the house and all of our loans on a single income, so we aren't really in a position where paying it off faster means freeing up money to be able to survive in the case of job loss or some other emergency. I think that if our loans were really something that had a huge affect to our bottom line, I would focus more on paying those down to give us breathing room.

I couldn't have said those highlighted portions better myself. Thank you! We can also afford our bills and loan payments on my husbands income, but it would be wonderful to have more breathing room because it is tight. I work part-time from home, so the money I make isn't a huge amount, but it saves for kids college and renos/debt payoff right now.

katylady09 · August 2014

brij2006 said:
The way we look at it, once we're debt free we will have so much more money in our monthly budget that we can remodel the home to the standards we prefer, and we then won't have to worry about it taking us longer due to budget constraints.

Wait to remodel, focus on the debt.

We have already agreed to not touch the bathrooms until we are out of debt completely because we want to gut those and want to be able to buy what we really want. We also spend the least amount of time in those. We also want to gut our kitchen eventually, but again, we are waiting to get out of debt completely, so for now we have just painted the walls and cabinets, and added hardware. I just need something that is more visually appealing than what we had originally--or I would/will go nuts staring at it all day.

brij2006 · August 2014

katylady09 said:

brij2006 said:
The way we look at it, once we're debt free we will have so much more money in our monthly budget that we can remodel the home to the standards we prefer, and we then won't have to worry about it taking us longer due to budget constraints.

Wait to remodel, focus on the debt.

We have already agreed to not touch the bathrooms until we are out of debt completely because we want to gut those and want to be able to buy what we really want. We also spend the least amount of time in those. We also want to gut our kitchen eventually, but again, we are waiting to get out of debt completely, so for now we have just painted the walls and cabinets, and added hardware. I just need something that is more visually appealing than what we had originally--or I would/will go nuts staring at it all day.

Coming from someone who would LOVE to update our 1970's kitchen, focus on the debt first and hold off on the remodeling. The house isn't going anywhere, but you will get to the point that you will want a more lucrative lifestyle. The last thing you want is debt looming over your head and making your dream lifestyle not possible.

I personally can't wait until the day we have the money saved up to remodel our kitchen and make it into exactly what we want. It's going to feel so much better if there are hiccups along the way then it won't matter because we don't have to worry about being able to make our car payment or student loan payments that month. Instead we can write a check for the remodeling with plenty of wiggle room in the budget, and not worry about playing the equity game with a home equity loan or mortgage.

jlaOK · August 2014

katylady09 said:

Thank you so much, girls!

jlaOK Our house is definitely functional without renovations….just extremely outdated. I am a very visual person (I work from home as a graphic designer and would one day like to open an interior decorating business once my kids are older), so it's just hard to live with on a day-to-day basis. That is why we are torn! If we didn't save for renovations and followed baby steps exactly (I would have to stop saving for my kiddos college), we could have steps 1 and 2 completed in about 4 years.

I understand how you feel. I also WFH and currently work in a hallway in our 1970s 2-bedroom apartment and HATE it. I'm doing this, however, because we are currently building our forever home and can save more towards our down payment by living here.

Based on the numbers you gave on a PP you have $34500 in debt? Have you ever done a real "gazelle intense" budget to see how fast you can pay that off? I say this because we've been on DR plan for 4 years now. We have done the big sacrifices and now that I'm on the back end of it I'm truly grateful that we waited and paid off debt before moving up in house. The last few years haven't been fun but I will definitely say it's been worth it. Just something to consider.

(New here) Thoughts on renovating a fixer upper vs. paying down debt

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