Financial Steps To Take after Paying off Debt

You’ve dreamed of being debt-free and after persistence, sacrifice and delayed gratification; you’ve paid off that last credit card bill. Congratulations, but your financial journey is nowhere near over.

Becoming debt-free doesn’t mean you suddenly have all the financial answers. You have to guard against backsliding, and plot your new course among the many new options that come with more disposable cash. Here are a few steps from Cash 1 Loans to take after you pay off your debt.

  1. Be the Tortoise, Not the Hare.

While, the hare in one of Aesop’s Fables was one of the fastest animals around, he quickly lost steam and was defeated in a race with a slow-moving tortoise. 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. 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.

  1. 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. When you finish, don’t stop there. Take another two to three years to aggressively save. You’ll be so pleased with the results.

  1. Reassess Your Budget.

You’ve had all your extra money going toward your debt payoff and it’s now time to redirect the money somewhere else. But that doesn’t mean you aren’t allowed to use any of the money for fun either.

If you’ve been working yourself to the bone and pinching pennies over the last several months or years take the time to figure out how you want to reallocate your income.

If you plan on putting a portion of that money towards things you consider fun like home improvement, clothing or a trip and decide how much that will be. While it’s absolutely okay to cut yourself some slack, if you don’t carefully plan you’ll end up spending all of your extra money on fun stuff rather than just the small portion you were planning.

  1. 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.

After paying off significant debt, one might easily have an extra $500 to $1,000 per month in disposable income. Without a plan, the extra money can simply “get lost” amid your normal spending money.

  1. 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.

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.

  1. Look into Alternative Investments.

Now that you have more money freed up each month you have the option of looking for ways to earn even more. One of these methods could be through alternative investments.

All of these ideas are not for everyone but if you’re interested here’s a list of things to consider:

  • Investing in Real Estate
  • Investing in Peer to Peer Lending
  • Learning How to Trade Stocks

Be sure to thoroughly research any new investment idea. Learn as much as you can before investing large amounts!

  1. Put More Towards Retirement.

When I was working on building up my finances to a level I considered stable, one thing I definitely slacked on was retirement savings. If you’re like me, now is a good time to increase your contributions.

Even increasing your retirement savings by 5 or 10% can go a long way. This is also one of our favorite strategies for reducing the taxes you have to pay before the end of the year.

  1. Start a Side Business.

When you’re saddled with debt, taking any type of risk with income can seem scary. Perhaps that debt has held you back from trying out a new side business idea you’ve been interested in? If so, now is a good time to get your feet wet and give your idea a fair try.

  1. 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. If overspending got you in credit card debt before, you might want to stick with cash.

  1. Prepare for the Toll on Relationships.

You’ll realize such a significant accomplishment as paying off your debt is 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 restraints.

Now that you’re debt free, you may have to find other topics of conversation and ways of connecting. 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.

  1. Stay Goal Oriented.

It was easy to stay focused on paying off your debt (most of the time) because you had a strong goal. You knew exactly how much debt you had to pay off and could calculate how much time it would take based on your extra monthly cash flow.

That goal kept you motivated.

If you want to keep improving your personal finances, you need to stay goal oriented. While it’s perfectly fine to loosen the reigns a bit you’re going to need to set yourself strong goals to stay focused on the end game.

  1. Spend and Have A Blast.

Now, it’s not all about saving. I don’t use the word often, but after all your hard work paying off debt and saving so much; you deserve to spend a little!

This is one of the most difficult steps for anyone who has paid off large amounts of debt because it doesn’t come naturally. However, if you are actively saving 15% or more of your income and investing in your retirement accounts, you have an emergency fund, and you have money left over every month, you should be free to go on vacation or buy whatever you want as long as it’s not more than what you have.

Ultimately, paying off debt is just the first step to your journey of financial independence, but it’s the most important one because it sets the path for the rest of your journey to financial success. Just remember that life isn’t all about saving, saving and saving some more. Leave yourself a little room to enjoy life’s little extras too, especially because you spent so much time setting yourself up for success.