What to do after debt consolidation

Top 5 Things to Do After Debt Consolidation

May 07, 2021
By Mariclare Cranston, Content Specialist

What Do I Do After I Consolidate My Debt?

Is debt consolidation on your radar? You wouldn’t be alone. Almost half of Americans polled in a recent survey by CreditCards.com feel stress about their credit card balances.

Understanding debt consolidation is important – but it’s what you do after you consolidate that very often determines whether or not it will work for you. Some behaviors and plans need to be addressed to make sure the consolidation doesn’t end up adding more financial stress instead of alleviating it. Check out the top 5 things to do after you consolidate your debt:

  1. Slow your spending
  2. Review your budget
  3. Set up autopayments
  4. Establish emergency savings
  5. Avoid new credit

What Happens When You Consolidate Debt?

Before diving into what to do after you consolidate debt, here’s a reminder of what happens when you consolidate debt. Consolidation typically happens with a Personal Loan or a Home Equity Loan. The money received from the loan then pays off your other debts. These almost always include credit card debts but can also include things like medical bills.

Once your debt is consolidated, you only make payments on that one loan, rather than multiple credit cards. Often, the interest rate on a debt consolidation loan is lower than on the credit cards that are paid off.

Debt consolidation loans are not the same as debt relief programs. Debt relief programs typically cost money and can take several months to complete.

Get more information about debt consolidation, including how and why it works. Read the article here.

Here’s What to do After You Consolidate Your Debt

Slow Your Spending

You’ll likely feel a giant sense of relief after you consolidate debt. But there’s reason to be cautious amidst that optimism. Once you start feeling financially good, the temptation to keep spending money is going to be there. The problem is, if you had trouble managing your credit card spending in the past, debt consolidation won’t fix that. Only you can.

Have a plan for managing your spending after you consolidate debt. If you racked up debt with unnecessary purchases – travel, clothing, merchandise – you’ll need to know how you’re going to curb those expenses now. Consider options like:

  • Building a spending allowance into your budget
  • Giving yourself a day to decide if you really need or want an item
  • Selling unwanted items and using that money to purchase new things
  • Working a part-time job to earn “fun money”


Debt consolidation doesn't fix bad spending habits

If your debt was the result of paying for everyday things like groceries and gas, it’s time to re-work your budget. The debt consolidation loan should make planning and paying for your monthly expenses easier. Take advantage of the fresh start and start budgeting your income to help meet expenses.

Should I Close my Credit Cards After Consolidating My Debt?

Chart displaying the pros and cons of closing a credit card.

Review (or Build) Your Budget

Budgeting is one of the most effective ways to manage your money. The Balance believes it’s the most important money management tool. People avoid it because it sounds like a lot of work – and upfront it is. Once it’s built, though, you’ll have insights into your cash flow that you’ve never had before.

Where do you even start with a budget? If you don’t have one built, start by downloading your budget tool here.

Understanding where your money goes allows you to portion it out to avoid running short or over-spending. It takes the guesswork out of money management. Commit to building a budget to maximize the success of your debt consolidation.

Set Up Automatic Payments

Forget late fees! Automatic payments eliminate the last-minute bill payments that may or may not arrive late. Establishing autopay for your loan payment, utilities, or other monthly expenses ensures that your bills are getting paid on time. And payment history makes up a whopping 35% of your credit score.

35%25 of your credit score depends on your payment history

On-time payments also mean no late fees. These unexpected charges can take a bite out of your budget and leave you short for other expenses. Autopay automatically pays your bills for you on a date you select. Just remember to keep enough money in your account to cover your automatic payments. To set up autopay, log in to your financial institution's Online or Mobile Banking and look for the bill payment option.

Bank with MHV? Check out this page for information on automatic payments.

Establish Emergency Savings

The unexpected is going to happen. So be prepared for it. Setting up and continuously funding an emergency savings gives you a buffer when sudden expenses pop up. One of the most effective ways to fund your Savings Account is with direct deposits from your paycheck. Talk to your Human Resources representative about allocating some of your direct deposit into your Savings Account.

If you can’t quite manage that yet, consider microsaving. This small-step strategy helps you build the habit of saving money with small deposits. Change from the grocery store, rounding up your purchases, or starting a change jar are all ways to get on board with microsaving. Get more information about how it works in this article

Savings Accounts are also a great way to pay for things without using a credit card. If you’d like to take a vacation next year, set up a Savings Account exclusively for your trip. Start depositing your change, bonus payments, and any other extra cash. When it’s time to plan your trip you can budget around the amount you’ve saved up.

How about a guide to all things debt consolidation?

This free download walks you through financial warning signs, how debt consolidation works, and recaps what you should do after debt consolidation. Get your copy here.

debt consolidation ebook

Avoid New Credit

One of the side effects of debt consolidation can be a jump in your credit score. You’ve paid off your cards with the loan, which frees up your available credit. And credit utilization is a big part of your score – up to 30%. So when you make more credit available, your score will likely improve.

This higher score will launch a wave of new credit card offers. They’ll have enticing perks like 0% interest for a year or rewards programs. It’s probably going to feel exciting, especially if you haven’t received offers like this before. But remember: credit card usage means you’ll be adding that monthly payment back into your expenses – on top of your debt consolidation loan payment. Adding and using new credit erases the benefit of consolidation and could leave you struggling to make payments again.

Find out the truth about improving your credit score. This episode of MHV’s Off the Trail podcast features Consumer Loan Underwriter Aaron Lindo giving us the lowdown on bringing your score up. Tune in here.

Make Debt Consolidation Work for You

Debt Consolidation can reduce financial stress and improve your cash flow. But it won’t work unless you have a plan for managing money after you consolidate. Start with these steps to begin building a more stable financial future.  

Ready for a Debt Consolidation Loan?

Other articles you may be interested in