Life after Debt Consolidation

While debt consolidation can be and often is a profound and budget-saving method of getting debt relief, for some who manage the process on their own or poorly, it can turn into a nightmare and make matters much worse for them financially. After you have applied for, received and used a debt consolidation loan, there are certain hazards you should be aware of and take the necessary precautions to avoid in order to keep the newfound financial freedom you sought.

Turning from the Lure of Newfound Credit

The biggest and most common mistake that is made after a debt consolidation brings debt relief is turning back to the same credit or loans that have been freed up by transferring balances to the new loan. Usually this happens if you get a home equity loan, line of credit, or personal loan and use it to pay off many credit cards and then, seeing that you now have more money available on those cards, you slowly start to use those cards again. Many people who have found debt relief through consolidation often find themselves in a debt nightmare as they wake up one morning and realize that they have nearly doubled their debt (with the consolidation loan, and by charging back up those cards that were previously paid off). This is a key mistake and it can lead to very serious financial consequences. A few tips for avoiding this issue:

• Cut up your Credit Cards: You don't necessarily have to cancel your credit card accounts - keeping them open may be beneficial to your credit score, however, you want to make accessing that credit (and potentially getting into financial trouble again) more difficult and that can be accomplished by removing the cards themselves from your easy access.
• Set up a Budget: Keeping a budget can help you keep track of your money from month to month and after a consolidation, if you will simply resolve to pay off any credit cards you might use at the end of each month (budgeting for your credit card purchases), you should be able to stay out of trouble.
• Learn to Start Paying Cash: A budget actually works best if it is used on a cash basis for everything rather than having to balance credit card budgets at the end of every month. This will keep you from getting further and further into debt as well.

Budgeting to Get Ahead and Stay Ahead

A great way to manage your new life of debt relief is by budgeting your money using either pen and paper or one of the many freely available budgeting software programs online. A budget will help you keep track of every dime that comes into your life and every dime that goes out. Having this information will make you much better suited to staying out of debt because you will be able to see - with a well-maintained budget - a credit crisis coming a long way off and be able to act in order to avoid it.