A lot of us like to think that we can get a fresh start with our finances. We know that something needs to be done, and it feels like we’re fixing things when a big, dramatic decision is made. However, the sweeping moves meant to “fix” the situation often aren’t as fool-proof as we’d like them to be. Often, they just fix the symptoms of our money problems temporarily, rather than actually changing our behaviors.

If you want to find true financial success, you need to identify the actual causes of your money problems and then change your mindset and your behavior. Otherwise, the problem goes away for a short period of time, but you wind up back in trouble.

Is Bankruptcy Really a Fresh Start?

For some, bankruptcy represents a chance to start over again. You’re in a tough spot, but then you declare personal bankruptcy, and you have a chance to start without some of your debt. At the very least, in Chapter 13 bankruptcy, you have a payment plan you can deal with. You do end up with a rather large black mark on your credit history, but if you wait for seven to 10 years, the bankruptcy comes off your credit history, and you can start rebuilding your credit before then.

Unfortunately, declaring bankruptcy doesn’t solve the underlying causes of your financial problems. It suppresses the symptoms, but that doesn’t mean that you have changed. Indeed, Harvard University has looked into the effectiveness of bankruptcy. The Bankruptcy Data Project is a collection of papers and studies related to bankruptcy and other financial issues. For more than 20 years, the group has studied bankruptcy. Some of the information found through the project is interesting, including two points of data:

  1. 25% of those who who file for bankruptcy have trouble paying routine bills one year later.
  2. 33% of those who file for bankruptcy say that, one year after bankruptcy, their overall financial situation is similar to the position they were in when they filed.

That is a significant number of people whose fortunes aren’t changed much, in spite of a “fresh start.” The key isn’t getting rid of debts in one fell swoop. Once the debts are cleared, if the financial and lifestyle habits that led to the debts in the first place haven’t changed, it’s only a matter of time before you are back in trouble.

Balance Transfers and Debt Consolidation

Perhaps you don’t think bankruptcy is the answer. Instead, you might decide that you might benefit from reducing your overall interest rate, or consolidating your debt in one place. This can make sense. However, this, like bankruptcy, is an example of a large gesture meant to help you get rid of your debt quickly.

While balance transfers or debt consolidation can help you reduce your debt, they don’t solve the problem. Once again, without the change of heart — and a fundamental change in your spending and saving behaviors — you can end up back where you started. In fact, it’s possible to find yourself in even more debt, worse off than you were before.

Using a balance transfer offer from a credit card issuer can help you reduce your interest rate to 0% for a period of time. This allows you to reduce your debt quickly, with a minimum amount of fuss. However, it also means that you have just opened a new credit card account. With some of your debt on the new card, an older card is “freed up.” If you haven’t changed your habits, there is a very good chance that you will rack up new debt on the newly freed up card. Now you are in a deeper hole than you started.

The same thing can happen when you consolidate your debt. If you use a loan to consolidate your debt, then, once again, it seems as though you have more money available, with the other debts gone. If you have third-party consolidation, there is still a feeling that you have “more room.” This is because your monthly payment is lower now. You have some breathing room. Unfortunately, without fundamental changes, you can easily let your spending get out of control again.

Make Small, Permanent Changes for Better Results

Instead of trying to “solve” the problem all at once, make smaller, permanent changes. Identify triggers that lead to spending, and consider slowly paying down your debt, according to a plan that you work out. Sometimes, the big things can be superficial. You ease the situation for a time, but if you haven’t changed, there is no way to avoid the same problems later. It’s about better financial management and cultivating the financial basics, not some magic solution that “fixes” your finances. Start out by making smaller changes in your life. Over time, you will replace bad money habits with good money habits, and you will truly be in a better place.