After You Pay Off a Large Debt: The Next Steps
Paying off a big debt is a huge relief. In many cases, it may free up income that you haven’t had for years! The question, of course, is, “What comes next?”
These are the key things you should do after paying off a big debt.
1. Evaluate the Cause of Debt
What causes you to fall into debt in the first place? Some things – like buying a house or an immediate need for a new car – may make debt feel inevitable. When you evaluate the patterns that led to big debt, however, you can develop a better plan that will help you avoid going into debt in the future. For example, if you tend to overspend around the holidays or are guilty of taking elaborate vacations that your family can’t really afford, find a way to avoid those expenses or reduce them in the future.
2. Focus on Your New Goals
If you’ve paid off one debt, many top financial advisers recommend taking the money that was going toward that debt each month and putting it toward the next debt. Once you’re out of debt completely, you may have new financial goals: buying a house, purchasing a new car, or handling another major upcoming expense. Since your debt is reduced, now is the time to start focusing on those goals!
3. Develop a New Budget
Thanks to the fact that the debt is paid off, you now have a huge payment that you don’t have to worry about anymore. That means a large chunk of your income that’s now yours to do with as you like! Don’t, however, fall into the trap of blowing that money as soon as it’s in your hands. Instead, make a plan:
- Allocate part of your new budget to savings and arrange for this to be transferred automatically each time you are paid.
- Determine what large expenses are coming up, from holidays to car or home repairs that you know are coming, and create an account specifically for that purpose.
- Prepare for emergency expenses. Make sure that some of your new income is allocated to preparing for those, especially if you feel as though you’ve been existing in a state of emergency for a long time.
After you’ve paid off a debt, move forward with your new financial plan as soon as possible. When you make changes before you get used to the new income in your bank account, you’ll find that it’s easier to overspend and harder to get back on track with your real long-term goals.
If you do find yourself in the position of needing a short-term loan to help you get on track financially or to help you out in a pinch, contact us today to learn how we can help.