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You've paid off your debt. Now what?

Tamara E. Holmes

You've dreamt of being debt-free and after years of persistence, sacrifice and delayed gratification, you've paid off that last credit card bill.

But becoming debt-free doesn't mean you suddenly have all the financial answers, says Angel Tuccy, a radio show host in Denver. When Tuccy and her husband made the commitment to get out of debt, "we struggled with what to do with the growing savings account each month," she says.

With more disposable cash comes more options. Here's how to make the most of a brighter financial situation.

1. Be the tortoise, not the hare. While the hare in one of Aeosop's Fables was one of the fastest animals around, he lost a race to a slow-moving tortoise after quickly losing steam.  When it comes to your money, it's better to be slow and methodical than fast and impulsive. "Rushed decisions are very often emotional decisions," says Laura Martin, a financial therapist based in Portland, Oregon. Take a couple of months to get used to your financial situation and determine what you want to accomplish next. Then create a spending plan that will get you there.

2. Commit to a new major goal. One of the benefits of paying off debt is proving to yourself that you have the heart to achieve a big goal. Keep those motivational juices going by finding another mountain to conquer. "People can pay off huge amounts of debt in three to five years," says Cristy Cash, vice president with Consumer Credit Counseling Service of Central Oklahoma. "When you finish, don't stop there. Take another two to three years to aggressively save. You'll be so pleased with the results."

3. Fight the urge to chuck the budget. When every penny no longer needs to be accounted for, you may think you no longer need a spending plan. But, "if you don't have guidelines, you can go back into the same cycle," says Dana S. Branham, a financial adviser with Lasting Legacy Wealth Management in Lexington, Kentucky.

After paying off significant debt, one might easily have an extra $500 to $1,000 per month in disposable income. Without a plan, that money can simply "get lost" amidst your normal spending money, Cash adds.

4. Consider priorities you put off.  If you've been paying off debt, chances are there are things you've been putting off. Whether it's buying a long-term care policy, starting your child's education fund or even taking that dream vacation, now you can put money aside for those things you neglected. Two areas to pay particular attention to are emergency savings and retirement, Cash says.

That's what Zina Kumok of Indianapolis did after taking three years to pay off $28,000 in student loans. "Since paying off my loans, we've been able to increase our retirement contributions to 10 percent, save $15,000 or six months' worth of expenses and also save for a European vacation next year," she says.

5. Invest in a dream. If you've always wanted to go back to school or start a new business, now might be the time to do it since you have a clean financial slate, Branham says. Also look for ways to use your money to make money such as through investing or buying real estate.

6. Incorporate the lessons learned. Don't forget the difficult lessons your debt taught you. "I have seen people pay off debt and then plow themselves back in because they have not addressed the root of the issue," says Martin. If overspending got you in credit card debt before, you might want to stick with cash. For example, once Tuccy became debt-free, "we paid cash for all of our cars, paid cash for braces and we were able to pay for our daughter's college."

7. Prepare for the toll on relationships. When you realize such a significant accomplishment as paying off your debt, it's likely to affect those around you. For example, you and your friends may have grumbled together about your money woes or your inability to do certain things because of financial constraints. Now that you're in a better financial place, "you may have to find other topics of conversation and ways of connecting," Martin says. On the flip side, some friends or family members may be more apt to ask for a handout. If you don't want to fulfill such requests, plan in advance how to turn them down.

8. Yes, you can spend more. When you've been cutting back and putting purchases off in order to pay down debt, you may feel uncomfortable giving yourself more money to spend on fun things such as sporting events or restaurants, but "having more money to spend is one of the points of getting rid of the debt in the first place," says Branham. After Kumok fed her retirement and emergency accounts, "I also increased my monthly entertainment fund," she says. "It feels so good to know that I'm being responsible with money as well as enjoying it."

The more money you have, the more financial decisions you potentially have to make. "That's a fortunate problem to have," Branham says.

See related: Mortgage paid off? Weigh your windfall choices carefully, Biggest debt losers: Couple weathers hardships to repay $50,000