You’ve finally done it! You successfully paid off all of your debt and now you are officially a free man (or woman). If you were like most Americans, it most likely took years to get where you are now.
After countless nights of stress and anxiety, wondering if the next bill will be paid, and the heavy boulder of debt carried on your shoulders, it is now over. Take a deep breath and let the stress wash away. Those dark times are behind you now.
You open up your windows and look out onto your property, breathing in the sweet taste of freedom. This was your goal for who knows how long. But that lingering thought in the back of your head started to tingle. What now?
Dedicating so much time and money into becoming debt-free was your only focus. Now that this is over, you’re left kind of dazed and confused. Your next steps seem a bit foggy. Some people often get depressed after reaching their goals, because it’s hard to see what comes next.
But now you are free to make your own decisions about your own money. It’s no longer swallowed up by debt repayment. It’s time to think about a new plan for your next steps with your money.
Treat Yourself
You’ve worked your butt off and were so careful not to overspend on anything. Those luxuries and material things were put to the side and ignored. Out of sight out of mind.
Now that you’ve accomplished your goal of having 0 debt, it’s time to treat yourself. This doesn’t mean go right back into debt. Reward yourself with something within your budget.
Remember to be frugal and intentional with your spending. This is a great moment in your life. Don’t fall back into the belly of the beast called debt.
Keep Some Credit Cards Open
Yes, you read that right. After working so hard to pay off debt, one of the first things you want to do is cut them up and burn them. The very thought of a credit card disgusts you.
But some of your cards should remain open. In fact, closing an account may even hurt your credit score. Credit History is a big factor in determining your score. Canceling a card will change the average time you’ve had credit cards. Also the total available credit will naturally decrease by getting rid of your cards. Both of these could result in big declines in your credit score.
The main reason to keep your credit cards around is to build up your credit score. It probably took a hit stuck in debt for so long. You need to maintain usage of your cards to prove you can be responsible with your money and continue raising up that score for future purchases, like a house or a car.
Build A Full Emergency Fund
The next step is to go ahead and build up that emergency fund with 3 to 6 months worth of living expenses. You’ve previously already saved up $1,000 or more before tackling your debts to help keep you afloat in case of emergencies.
Now it’s time to create full stability around your finances as you prepare to increase your net worth. You need a good foundation in order to grow tall.
Sign up for a high-yield savings account and set up automatic deposits every month to build that up. Using the money previously dedicated to debt payments should now be available for use.
Investing for Retirement
Now that you are debt-free, you now have the capital open to think about retiring. Not just retiring at 65, but early retirement. You stuck around so you would have a stable paycheck to get through that debt repayment. But now, your job is looking more like a prison.
It’s now very popular to aim for early retirement. The term you most likely know F.I.R.E. Its financial independence retire early. A goal many are trying to achieve, but unsure if it’s entirely feasible.
Just add up your annual expenses and multiply that by 25. This is a common rule to determine how much you would need to retire early without worry. After that, a healthy 3%-4% withdrawal will keep that nest egg going strong for years to come throughout early retirement.
I would recommend closer to the 3% withdrawal rate. The sooner you retire the lower the success rate for maintaining the popular 4% rule applies. Always be sure to track your spending and your financial standing.
Without having debt payments every month holding you down, you’re now free to have more life goals, like early retirement or traveling the world.
Like I mentioned in previous blog posts, I’m only working towards the FI portion. I don’t have plans to retire early, but more focused on achieving financial independence. I aim to work only because I love what I do, not because I need it to survive.
Save For Big Purchases
When you were so focused on getting rid of that nasty debt, you were probably too busy to plan out big purchases you have in your future. The idea of owning a house seemed like a distant fantasy you would never see.
But now that you have extra cash flow in your life, now is the time to start thinking about these big purchases. In fact, some of these big purchases may have been part of your inspiration to get out of debt.
Currently I am saving for a house. It was a dream my wife and I had for years but could never achieve paying off our debt. Now that is no longer a dream and we can finally start saving for it.
Final Recap
Paying off your debt will probably be one of your most iconic moments in your life. The feeling of making the final debt payment likely meant more to you than others would know. I didn’t cry, you cried.
Your future is now yours to pursue a future without debt. So be sure to budget properly and watch your spending. Don’t live above your means and you should be able to continuing to live a life without debt.
