Renovating an old hammer is fairly easy, but like all things maintenance oriented are often deferred because maintenance feels like it's too much trouble. I have had an old hammer in my tool box for almost a decade and used it occasionally because it still did the job even though its head was loose and the handle was beat up and the head was all rusted. Then I watched one of my shop mates restore a hammer and I said to myself, time to fix up my old hammer.
Quick cut to the finish - once I put a new handle on the hammer and removed some of the rust off the head, I found myself much more inclined to use it - apparently we like to work with attractive tools. And even if a thing is easy to do, it's more likely to get done if we have a precedent. So, all you beat up hammer users out there - renovate!

Step 1: Tools Needed

To do this job you will need the following:
1) A new handle and wedges - available as a kit at your hardware store. If in doubt, bring the hammer with you to the store to make sure you buy the right size replacement handle. A friend has pointed out that a replacement handle may cost almost as much as a new hammer. Perhaps you might want to whittle your own handle.
2) A hacksaw for sawing off the old handle
3) A hammer and punch to drive out the old handle.

Step 2: Saw Off the Old Handle

Time to saw off the old handle. At this point you may be experiencing some remorse. I know I did. Maybe the old handle isn't so bad. This handle has a lot of history - etc. etc. Point is, you could maybe save the old handle except it's hard to get off unless you saw it off.
Also note the use of the hack saw. At some point in its life, the owner, probably someone other than you may have pounded nails into the end of the handle and you don't want to run into one of those with a wood saw. Ruins the teeth.

Step 3: Remove the Stub From the Head

You would think that the piece of handle remaining in the head would just fall out since the head was so loose. But it doesn't seem to so you have to punch it out. I used a punch, but heavens forbid, you could use a screw driver or any blunt object, even a piece of hard wood.
Now that you have a rusty hammer head without a handle, you may also wish to polish up the head a bit on a grinder or with some sand paper or a file. This will make it more shiny and attractive to use.

Step 4: Install New Handle

Holes in the heads of hammers seem to be fairly standard size so the new handle should fit the head. If the end of the handle is too fat, file it down so it fits. The end of the handle should be flush with the top of the head.

Step 5: Install Wooden Wedge

The top of the hole in the hammer head is wider than the bottom so as to provide some room for splaying out the handle for a good seat.
You may need to whittle down the sides of the wooden wedge to match the width of the slot in the hammer head.
Once you have a good fit, pound the wooden wedge as deep as it will go.
Then trim off the wedge with your hack saw.

Step 6: Pound in the Metal Wedge

If your kit comes with a metal wedge, pound that in at an angle to the wooden wedge. The point of this is to seat the handle against the ends of the slot and to lock in the wooden wedge.
File or grind off anything protruding out the end of the head to give it a nice smooth finish.

Step 7: You're Done

Now you're done.
Enjoy the renewed addition to your tool box.
If you're feeling empowered by this exercise, renovate something else, like maybe a screw driver.