What you should do after paying off debt

This point in time is actually really important, because it could determine whether you stay out of debt or whether you end up back in debt later. So here are some basics for what to do now.

Congratulations! You paid off some or all of your debt! I bet it felt like this day would never come. But you stuck to it, you made sacrifices, and you reached your goal. But you might be wondering what you should (or shouldn’t) do next. And this point in time is actually really important, because it could determine whether you stay out of debt or whether you end up back in debt later. So here are some basics for what to do now.

Stop Using Your Credit Cards

If it’s credit card debt you’ve paid off, this is the most important thing to do afterwards. After paying off credit card debt, it can be easy to start racking up that debt again. This is a dangerous cycle to get trapped in. If you’ve struggled with overspending and credit card debt in the past, do yourself a favor and stop using your credit cards all together. Set up a budget based on your income and expenses and use cash or debit only. It might feel limiting or scary at first, but this will protect you from going back into debt after working so hard to get out of it. If you need to cut up your cards to stop yourself from using them, do it! And make sure to remove your credit card information from online shopping portals like Amazon.

Keep Your Credit Card Accounts Open

Just because you’ve paid off your debt and stopped using credit cards doesn’t mean you have to close your accounts. The length of your credit history and the credit limit available to you is really helpful to your credit score. And your credit score is important when it comes to future financial decisions like buying a car or a home. So even if you’re going to stop using your credit cards, keep the accounts themselves open so that they can help improve your credit score. If you don’t want the temptation of the cards, cut them up or give them to a trusted friend to lock away. They can be open even if they aren’t available to you!

If you’re worried about your credit company closing your account and hurting your credit, set up your credit card to pay for a small recurring payment, like your Netflix account. Be sure to also set up auto-pay so you don’t forget about it and get charged late fees and interest! This is an easy way to keep your accounts active without actually using them day-to-day.

Revisit Your Budget

You should revisit your budget every couple months or so to make sure it’s still working for you. But this is especially important to do when you’ve had a big financial change happen. This can be a pay increase, decrease, a new expense, or when you’ve paid off a debt. Now that you’ve paid off a portion (or all) of your debt, it’s a good time to revisit your budget and see how you can adjust things accordingly.

Figure out exactly what bills you have to pay each month (and throughout the year) now that you don’t have your debt. If you have another debt that you want to start working to pay off, move the money that was going towards your past debt to that other debt. Increasing the monthly payments will allow you to pay off the debt faster. If you don’t have another debt to work towards, decide where you want that money to go. It can be tempting to start spending more, but it will be more rewarding (both financially and emotionally) to align your money with your values and set yourself up for success later.

Allocate That Money Towards Your Goals

Now that you’ve paid off your debt, you have much more money available to you to use for anything you want. But be careful not to just start spending all of that money every month. It’s really easy to start spending the money without thinking about it, but you should stop yourself before you do that. You’ve lived without that money while paying off your debt, so what can you put it towards now that will help you? The best opportunity here is to start putting it into savings. This can be an emergency savings account or retirement savings. This is especially important if you haven’t been able to save for these things up until now. Automate the savings so that you aren’t tempted to spend the money now that it’s in your account!

This article was originally posted on MaggieGermano.com. 

Maggie Germano is a feminist and financial coach for women. She helps women improve their relationship with money so they can take control of their financial future. She does this through one-on-one financial coaching, workshops, writing, and speaking engagements. She also founded Money Circle, which is a safe space for women to talk about money without feeling judged. It’s a way to create community and openness around personal finance. Passionate about many issues affecting women, Maggie is a member of the Women’s Information Network and was trained as a salary negotiation facilitator by AAUW.