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What Should I do Once I Become Debt Free?

December 16, 2022 by Daniel Azzoli

Person celebrating from becoming debt free.

If you’ve ever gone through a period in life where you’ve been carrying a relatively substantial amount of debt, finally getting out from underneath its shadow was probably one of the more satisfying feelings you’ve ever experienced. No more worrying about the building interest on your credit card, or wondering when you’ll finally be able to free up space in your budget for something other than loan payments.

So, if this sounds like you, congratulations! You might now be at the stage where you’re wondering what your next move should be. What does debt free living look like? And how can you put your money to good use?

What Should you do Once you’re Free of Debt?

Becoming debt free is an important step to take towards financial stability, but it’s not the end of your journey. The good news is that by getting debt off your books, you can start to work towards larger financial goals. But how do you go about this? Let’s walk through some important steps to take towards financial freedom.

1. Check your Credit Score

Your credit history is an important signifier in the overall state of your financial health and can play a big role in determining what financial moves you can make moving forward. So, for these reasons, it’s a good idea to get a sense of what state your credit score is in. To do this, you can purchase your score through one of the three major credit bureaus – Equifax, TransUnion, or Experian – or you can use a free credit score service online.

Person researching what do to once they become debt free on their laptop.

On top of checking your score, it’s also a good idea to do a review of your credit report. You’re entitled to a free copy of your report every year from each major credit bureau. This will allow you to get a sense of what contributes to your credit history, and it also gives you the opportunity to spot any errors that may be on your report. These errors could be inadvertently harming your credit score, so you’ll want to report these to the credit bureau and whatever other relevant parties.

2. Create Financial Goals

Before you’ve even managed to become debt free, you’ll need to have some idea of what you want to do with your money when you’re able to hang on to more of it. With a proper spending plan in place, you may be able to stay out of whatever situation that led to the mountain of debt that you previously had, assuming you can stick to your plan.

To do this, start by setting financial goals to strive for. This can be a mix of short- and long-term goals and can include practical goals, and loftier dreams. The key here is to make sure that these goals are attainable and that you have a clear plan to help you reach them. A useful framework that can help to direct you is the SMART rule:

  • Specific: Try not to let your goals get too broad. When your goals are concise, the steps to getting there may be more straightforward.
  • Measurable: You should be able to keep track of your progress in a quantifiable way.
  • Achievable: While it’s okay to have big long-term goals, you should always make sure that they can be achieved in whatever time frame you’ve determined.
  • Relevant: Make sure your goals are productive and will play an active role in working towards your financial freedom.
  • Time-bound: You should make sure to set a timeline and a specific target date to help you stay on track.

3. Create an Emergency Fund

Before you become debt free, there’s a chance that you might be having a hard time finding room in your budget from savings. Now that you’ve been able to clear the slate, it’s time to put that extra room to good use.

One the most productive things you can do to future-proof your finances is to build an emergency fund, or at least start to increase your contributions to your already existing one. This fund is only meant to be used to help you deal with emergency expenses that may crop up down the line.

Your target savings goal for this fund is going to need to be specific to your situation and what you feel is right for you, but roughly six months worth of living expenses is typically a good target to aim at. While this might take some time, it’s a lot easier to get there when you’re living debt free.

4. Don’t Immediately Close your Revolving Credit Accounts

The dangers of overspending by using things like your credit card or line of credit can be severe. In fact, irresponsible use of your revolving credit accounts can be what gets some people into debt in the first place. If that’s been your problem in the past, then you’ll need to make sure you do something to change this habit.

Person entering credit card info into their phone.

Having said that, becoming debt free shouldn’t be an automatic trigger for you to close your revolving credit accounts. If you’re able to use credit responsibly, it can be a good way to make an impact on your credit history. Closing these accounts could also affect your credit utilization rate and certain other things that contribute to your credit score as well. Just remember to make sure you can afford to pay off what you owe on your revolving credit accounts in a timely manner.

5. Start a Retirement Fund

If you’re going to want to retire comfortably at some point in your life, you’ll likely need to start a retirement fund. And when it comes to building this fund, the earlier you start, the better. Depending on things like when you start, what your spending habits are, how much money you make, and more, you may even be able to retire earlier than expected! Debt free living is a first step in that direction.

6. Start Investing

Once you’ve become debt free and feel like your emergency fund is in a good place, it might be time to start making steps towards investing in your future wealth. This can include things like investing in the real estate market, getting into the stock market, investing in other businesses, and more.

The risk profile of each of these things is going to be different and you’ll need to invest time into learning about whatever road you want to travel down. But the investments you make now may go a long way in helping you to maintain a comfortable lifestyle down the line.

While you’ll want to do as much independent learning as you can, you may also want to consider speaking to a financial advisor or someone who is an expert in whatever industry you’re looking to participate in.

7. Start Saving for a Big Purchase

When you’re trying to find ways to pay off your debt, it can be hard to picture a scenario where you’ll have enough money to make any sort of substantial purchase. But now that you’re debt free, you can start to dream big!

Now, you’ll still want to make sure you follow the guidelines laid out in the SMART rules. You’ll need to make sure your goal is attainable and realistic. With bigger goals, you’ll need to make a commitment to long-term saving and stay patient throughout the process.

Another thing to keep in mind is that depending on what this big expense is, you may need to take on debt. For example, it can be extremely tough for the average person to buy a house without taking out a mortgage. But as long as you plan things out carefully, this can be a financially worthwhile endeavor.

8. Don’t Forget to Give Yourself a Reward

Becoming debt free is no easy feat, and you’ve likely put in a lot of hard work to get there. So, once you reach the end of this road, there’s no shame in celebrating your achievement.

Person looking up what to do once they become debt free on their phone.

You don’t need to make this something extravagant, and you definitely don’t want to do anything that’ll send you several steps back when it comes to your financial situation. Try to think of something that’s meaningful to you, but that also doesn’t extend your finances outside the confines of your budget.

Be Smart with your Finances

Living debt free is a worthy goal to strive for, but for a lot of people, it’s not always an easy path to travel. Depending on your situation, you may need to make some serious adjustments to your financial habits and stick to these changes when it may not be the easiest of transitions.

Having said that, with the right information in hand, hard work, and patience, you may be able to become debt free and start working towards the financial future you’ve always dreamed of. While the road may not be easy, the results will be worth it in the end!


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