Will Debt Consolidation Make You Spend More or Less?

There are many questions to ask and things to ponder prior to taking out a debt consolidation solution. One of the major considerations you will need to make involves a potentially big change to your lifestyle, namely taking control of your spending and changing the way you approach financial management.

If you’re at the stage where you’re considering a debt consolidation solution you probably already know what it is and how it works. The big question is the one asked in the title. Will debt consolidation make you spend more or less than you currently do? While the answer is not necessarily a straightforward one, the good thing is it is in your hands.

Using Debt Consolidation

There are three possible scenarios when it comes to using debt consolidation:

1. You use the debt consolidation to clear your existing debts and work towards a more responsible financial outlook.
2. You can use the debt consolidation to free up your access to credit and build up your debts once more.
3. Despite having a debt consolidation solution in place you continue to apply for and use new credit.

While the ideal outcome from debt consolidation is clearly the first scenario, many people do fall into the trap of spending big again. When considering debt consolidation you need to be prepared to take the step from big spender to wise spender. You might be able to make repayments and manage any accounts you open or continue to use while you have a debt consolidation loan, in which case you might need to consider whether such a solution is the right one for you.
Now that we know the possible outcomes of debt consolidation and that ideally you want to spend less, we can look at the strategies that might help you.

‘One of the major considerations you will need to make involves a potentially big change to your lifestyle, namely taking control of your spending and changing the way you approach financial management.”

Budgeting Effectively

If you’ve chosen debt consolidation as an effective debt management strategy, it is likely you have already begun to think about financial planning and budgeting. If not, now is the time to start. Sit down and plan your expenditure and ensure you are in a position where you will not need to rely on credit while paying off your consolidation loan.
If you need help with budgeting or financial planning, contact us today.

Closing Your Accounts

When you take out a debt consolidation loan they will pay your creditors directly so all you need to worry about is making your weekly or fortnightly repayment to us. Once we have done that, if you think you may be tempted to use your access to credit then close your accounts. There is no benefit to be had from having open credit accounts that you’re not going to use, and in some cases, having dormant accounts can even be detrimental to your credit score.
Close any remaining credit accounts while you’re paying off your consolidation loan. When you become better at managing your finances or need access to credit again in the future, you can apply safe in the knowledge that your credit report and history should be in good standing.

“There is no benefit to be had from having open credit accounts that you’re not going to use, and in some cases, having dormant accounts can even be detrimental to your credit score.”

Maintaining Self Discipline

As much as you can budget and close any open credit accounts, in large part managing your finances is going to come down to your own self-discipline. If your credit score means you can’t access credit then in some respects this may represent a positive, as you will be unable to open additional accounts. However, you will still need to manage your spending, and if you do maintain access to credit be very careful about how you use it, if at all.
Debt consolidation can be an excellent solution for those looking to ease debt concerns or simply make managing their finances easier, but whether it works is largely down to you. Make it work for you and you could be on the right track to a brighter financial future, but if you fail to be sensible you could potentially find yourself with debt problems mounting once again.


What you need to know

Constancy Wealth Management is an Authorised Representative and Credit Representative of AMP Financial Planning Pty Limited ABN 89 051 208 327 AFSL 232706 and Australian Credit Licence 232706. This information does not take your circumstances into account, so read the relevant disclosure documents and consider what’s right for you. If you acquire an AMP product or service, AMP companies and/or their representatives will receive fees and other benefits, which will be a dollar amount and/or a percentage of either the premium you pay or the value of your investments. Ask us for more details.

This post contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information