You're Debt-Free. Now What?

You did it. After months and months of hard work and dedication, you’ve finally paid off your debt. However, while this is certainly a cause for celebration, it’s important to remember that the fight for financial freedom isn’t over just yet.

Life after debt, while undoubtedly easier, comes with its own set of challenges. So, to help get you on the right path post-debt, here are some things you may want to do after paying off your balances.

1. Reflect on What You’ve Learned

While working your way out of debt is a huge accomplishment, it’s important to learn from the mistakes that got you there. In most cases, debt is typically the result of poor financial planning or adopting poor financial habits. Taking time to sit down and really think about what led you into debt can help you identify your shortcomings. While it isn’t always easy to admit we were wrong or made a mistake, doing so is the first step towards building a better future.

2. Start Building (or Contributing More to) an Emergency Fund

When it comes to maintaining financial stability having an emergency fund is key. A well-constructed emergency fund can help you manage a multitude of unforeseen expenses (home improvement costs, medical bills, loss of employment, etc.) and keep you from falling back into debt. Ideally, an emergency fund should be able to cover anywhere between three to six months of expenses. If you haven’t started building (or had to stop contributing to) an emergency fund because of debt, you may want to invest your newfound cash flow to this critical financial endeavor.

3. Take a Look at Your Retirement Savings

In order to get the most out of retirement savings and capitalize on compound interest, it’s crucial to start saving for retirement as soon as possible. With the extra cash flow you’ve freed up from paying off debt you may want to consider contributing more to your retirement savings. Whether it’s for an employer-sponsored plan, 401(k), or IRA, maxing out your retirement contributions is a fantastic way to ensure you’ll have enough money come retirement. If you’re already maxing out your contributions, you may want to consider consulting a professional financial planner for more investment ideas.

4. Re-Evaluate Your Budget

So you’ve already got your emergency fund under control and have maxed out your retirement contributions, what’s left? Re-evaluating your budget can help you determine the best way to utilize your newly freed up cash. Maybe you’ll find that you can expedite your vacation savings, or that you can put a little more towards your car payment. Whatever you decide, it’s important to adjust your budget accurately to minimize the chances of overspending and falling into debt again.

5. Start Using Credit Again … Wisely

Chances are your credit score took a bit of a hit while you were in debt. While paying it off is a huge step in the right direction, you need to continually demonstrate that you’re responsible with your credit. If your debt has hurt your credit score, consider applying for a secured credit card to start rebuilding your creditworthiness. You can also avoid taking out credit for frivolous purchases and focus on only taking on “good debt” like a mortgage, when your credit score and your budget allows. Not only will this help you avoid falling back into debt in the future, you should start to see a rise in your credit score. (You can track your progress by viewing your free credit report summary each month on Credit.com.)

Lastly, you should find some time to celebrate your accomplishment. Getting out of debt is by no means an easy task and you should feel good about what you’ve achieved. Of course, you’re going to want to make sure any financial component of your celebration isn’t extravagant. Or you may find yourself right back where you started. Moderation is an important thing to keep in mind when you’re looking to stay financially fit.