Out of Debt?  Now What?

By Linda Jacob, AFC®, CFP®

With tax season upon us and many of us getting a tax return, and with the addition of stimulus checks, we are seeing more and more of our clients paying off their debt much faster than anticipated.  What great news!  One of the best parts of my job is calling these clients just to congratulate them for being debt free!

But then you have to ask yourself “now what?”.  How will I use the money that was going to creditors?  Will I open a new credit card? Or go buy that new car?  It’s so tempting!  It’s best to make a plan before becoming debt free.  That’s when you will make the best decisions.  Decisions made during the elation of being debt free might not be the best course of action for moving you into the future.

Start with writing down your goals.  What do you want to accomplish in the next 12 months?  If you don’t have an emergency fund, you need to take the money you were paying to the creditors and deposit it into a savings account.  These funds will be available to you when life happens, and you won’t have to go back into debt to get you through the tough time.   You’ve been living with out this money every month anyway, so you might as well “pay yourself first”.

Once that is done, what else would you like to accomplish?  Write your goals down and calculate how much you need to put away each month to reach the goal in the time frame you set aside for yourself.  Get that money working for you.  Putting this monthly savings directly on your budget and treating like a bill, will help you to stay on track.

Lastly, its ok to celebrate a little.  Plan for that too.  A nice dinner out or a mini vacation using the payment amount for the first month is ok.  Just don’t do this every month.  You work hard for your money, let it return the favor.