How Should You Pay for Post-Hurricane Home Repairs?

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Homeowners who have to repair damage to their houses or were displaced in the wake of Hurricane Irene may face the financially difficult prospect of restoring their homes to pre-storm conditions on their own dime.

Disaster forecasting company Eqecat estimates that Irene caused between $1.5 billion and $2.8 billion in insured losses in the U.S. This is a fraction of the company’s total storm damage estimate of more than $10 billion. Even Americans who are insured are likely to face high deductibles. “Families will have to dig deeper into their pockets because insurers have been steadily increasing hurricane wind coverage deductibles and imposing other policy limitations,” J. Robert Hunter, the director of insurance for the Consumer Federation of America, said in a statement.

What this will translate to for many families will be pulling out their credit cards. But is this a good idea? Jack Gillis, CFA spokesman, says there are pros and cons to credit card use and families should consider the following before pulling out the plastic.

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One big advantage to credit cards is that if repair work is done shoddily, you may have recourse to dispute the charge. Gillis points out that unscrupulous “fly by night” contractors may exploit natural disasters to prey on desperate homeowners. Paying for work with a credit card gives you an extra measure of protection.

Of course, the most obvious advantage to using a credit card is that you can get repairs completed in a timely fashion and — if you were displaced — return to your home, job and routine more quickly. Of course, the flip side to this is that credit card companies will expect to be paid quickly, and if you’re stuck in limbo waiting for a claim to be approved, you could accrue significant interest charges.

Also, just because you’re paying with a credit card doesn’t mean you should leave your insurance company out of the loop, Gillis warns. For instance, many insurers have a list of vendors with whom they contract repair work; if you don’t know that and hire a contractor, tree-remover or other professional without checking in advance, you might have trouble getting reimbursed.

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If you decide paying with a credit card is too risky, or if repair bills would exceed your credit limit, there are a few other options. Wells Fargo and Chase both announced after the storm that they were waiving early-withdrawl penalties on CDs. Although the “grace periods” extended by both those banks have expired, they as well as other banks indicated they will consider waiving fees on a case-by-case basis. If you have savings tied up in a CD and you need the funds for repairs, contact the bank and ask for an exception.

A couple of regional banks in the Northeast also indicated they were extending lower-cost loans to people affected by the hurricane to help them pay for repairs. Webster Bank and Sovereign Bank both say they are offering loans of up to $15,000 and $10,000, respectively, to help people rebuild. If you have an existing relationship with another bank or credit union, it’s certainly worth asking if they have a similar program set up to lend a hand to hurricane victims.