Get a Line of Credit for an Addition? Depends on Your Financial Foundation.

Mark Zmarzly and his wife Angie are not doing so bad financially, and they'd like to keep it that way.

Like most 30somethings, they do have some debt: a $14,000 car loan and a $10,000 student loan. But they owe nothing on any credit cards and have a decent amount in their 401(k)s and Roth IRAs despite recent market turbulence. They also have $81,000 left to pay on a mortgage for a house recently assessed at $127,000.

But the house in Lincoln, Neb., was starting to feel small for the couple and their toddler, especially given that they want more children. They had to decide: Buy a house or add to the one they have? They opted for the addition and got a home-equity line of credit of $20,000 at a good rate: 6.25 percent for five years and then the prime rate after that. That was before the economy took a bad turn.

The contractor has been hired, the permits have been obtained. Now it's time for Zmarzly to write a check. Instead he wrote to us with this question: "Is this still a good idea?"

When I called him last week, Zmarzly, who works in the marketing branch of a bank consulting company, said he was having "pre-buyer's remorse." The line of credit would increase his home loan to value ratio (the amount of money you borrow compared with the price or appraised value of the home) to 80 percent. Not bad, but not as good as it is now.

A self-described aggressive saver, Zmarzly, 33, is not sure it's prudent to take on more debt at a time when most experts say you should be steeling yourself for a possible recession. Shouldn't we all be spending money only when necessary? Shouldn't we all be paying off our bills? Isn't it time to don the financial Kevlar?

"The idea of taking out a $20,000 loan on the house with everything going on makes me uncomfortable," he said.

The planners I talked to agreed: We can't completely zip up our wallets, but now is not the time to make major financial decisions without some careful consideration.

"You don't need to stop living just because the market is down. However, people should be looking at issues of debt with a finer-tooth comb in this market," said Kelly Campbell, president of Campbell Wealth Management in Fairfax.

Zmarzly and his wife, who works part-time for a charitable foundation, should first consider how much job security they have. Then they have to think about their cash flow situation. Do they have surplus cash, or are they making ends meet? Do they have five to six months of emergency cash reserves? If the renovation lasts longer than expected or ends up costing more, as often happens, could they cover it without tapping into their emergency cash reserves? Will the monthly payment on the loan mean they won't have enough left over to put in savings?

"If the renovation will create cash flow concerns and they do not have emergency cash reserves, it would likely be prudent to defer this project until their financial circumstances are on sounder footing," said Stephen E. Bingham, owner of Bingham Financial Advisory in Arlington.

Karen Schaeffer, a planner at Schaeffer Financial in Rockville, said the couple should also "avoid the temptation to overspend on a renovation using the since-we-already-have-things-torn-up rationale."