You're Debt-Free: What's Next?

AJ Smith

There are so many ways to end up in debt – from student loans or car loans to mortgage payments and credit card fees. Debts can add up fast, and paying them back is often a proud moment in your financial history. While conquering debt is cause for celebration, this can also be an opportunity to continue bettering your financial health. Once the last debt payment is made, here are some new goals to set to ensure that freed-up cash is put to good use.

1. Give Yourself Props

Getting yourself out of debt is no small feat and it’s OK to mark the moment. You have accomplished something and should celebrate. Just don’t let that celebration doesn’t put you back into debt.

There are guilt-free celebrations – like looking over your finances from your low point to where you are now – and there are costly celebrations. One splurge (or mini-splurge) may be OK, and if you’ve been living a very bare-bones lifestyle you may look at areas where you can now add a little funding. But ultimately it’s a good idea to acknowledge your past and continue looking to the (financial) future.

2. Re-Assess Your Budget

Your budget is basically a breakdown of how much money you have coming in and how much you have going out. Since these numbers change throughout a lifetime, it’s important to look over your budget on a regular basis. Moving, getting a new job or having a child are pretty obvious times to do this. But it’s good to also do it once you’ve paid off your debts and then every so often after that to make sure you are where you want to be.

3. Start Saving

While the purse strings may loosen a little bit, it’s a good idea to take what you learned from your strategy to pay off your debt and apply it to build up savings. Whether you are saving to buy a home, building up a nest egg for retirement or planning a getaway, you can keep living on your current budget and simply apply the debt payment to your savings goal instead.

This strategy is designed to avoid lifestyle creep, when new money in your budget goes to increasing your lifestyle expenditures instead of reaching your financial goals. Try to primarily keep living as you did when you were paying off debt.

4. Emergency Funding

There are several reasons to have an emergency fund, but once you are out of debt this should seem even more imperative. Even the most financially prepared individuals and budget experts face unpredictable expenses. Emergencies can set you back years if you do not have funds set aside. An emergency fund can prevent you from falling into debt again in the future. By staying prepared beyond the expected you can maintain the financial health you worked to achieve.

Celebrate paying off your debt as you see fit, but it’s important to use this time to poise yourself for a debt-free future. This transition can be a testing time, so it’s a good idea to maintain your responsible habits and keep close tabs on your finances. You can see how your debt impacts your credit scores for free on, which gives you a breakdown of your credit data and what you can do to improve your scores.

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