First 7 Things to Do After Becoming Debt Free

Debt is extremely common and comes in many different forms. There are numerous reasons as to why an individual might choose to take on debt. Someone might get a mortgage to buy a home. Someone might get an auto loan to cover the cost of a new car. Someone may need help covering their medical bills.

Individuals in need of fast emergency funding may decide to get a title loan. A person seeking higher education could get a student loan to cover college tuition. Having debt isn’t inherently bad, but when it gets out of control, you may need to take measures to get out of debt.

There are countless “how to” articles on the internet dedicated to teaching readers how to get out of debt. However, there are very few resources that tell you what to do once you are officially debt free. You may have completed what you set out to do, but that’s just the start of your journey to an optimum financial life.

Here are seven important steps that should be a priority after you finish paying off your debt:

  1. Reorganize Your Budget

Now that you are done making your monthly debt payments, you likely have a lot of extra room in your budget. Look at what areas in your life could use a little extra cushion. Redirect the money you used to spend on debt payments toward other expenses or even financial goals like a vacation.

  1. Grow Your Emergency Fund Further

You might have a small emergency fund started, but your priority was most likely your debt. Now that you have the opportunity to really grow and cushion your emergency fund, take advantage. Try to save up six months’ worth of expenses in your emergency fund. This will help protect you in the event of a financial calamity.

  1. Increase Retirement Contributions

Whether you are young or old, increase your monthly contribution to your retirement accounts. That extra money that you have now thanks to your debt being paid can go toward creating a comfortable and happy retirement for yourself.

  1. Avoid Further Debt

Try to avoid acquiring debt for a while. Now that you’re out of debt, you may be tempted to acquire a new loan or use that credit card. The best thing to do, if you would like to make use of your credit, is to set up a budget plan. Avoid any and all high interest credit so that you don’t risk debt traps. Gravitate towards good debt and steer clear of bad debt that does nothing to add to your net worth.

  1. Improve Your Credit Score

If you were in a lot of debt, then your credit score might not currently be in the best shape. Now that you are debt free, this is the perfect time to dedicate some effort towards improving your credit score. You can do this in a way that doesn’t get you back in debt. Use a secured credit card and pay off your balances every month.

  1. Look into Investing

Without your monthly credit card bills to stress over, you have the freedom to start dabbling in investment. You can begin building your investment portfolio by starting small–perhaps with mutual funds or the stock market.

  1. Plan and Save for Something Exciting

Not everything about your personal finances needs to be so serious. You’ve done something really big – paying off your debt – and you deserve to celebrate that financial freedom! So, start saving for that vacation you’ve always wanted or save for a big purchase you never thought you’d be able to make because of your debt. Enjoy the rewards of your hard work.

Image source: Mike Cohen, via Creditscoregeek.com

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