What Do I Do Once I'm Out of Debt?

Have you gotten rid of your debt? Learn what to do next.
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Paying off your debt is a big step in achieving financial security. But once you get out of debt, you may be left wondering what to do next when it comes to your finances.


You're not alone. Many people make it their primary focus to get out of debt, but when it finally happens, they feel a bit lost. But this isn't the time to get lazy with your finances. It's important to have a solid financial plan in place as you continue to improve your finances so you can work toward your goals, and avoid falling back into old patterns, like getting back in debt.

Read on for six steps to take once you've paid off your debt.

Keep Budgeting 

There's no doubt about it: You have worked hard to pay off your debt. It can be tempting to stop worrying about money constantly and relax when it comes to spending and budgeting.

You may consider cutting the budgeting completely since you've finally reached a major financial goal by paying off your debt. You may not want to keep worrying about money, but if you stop paying attention to how you are spending your money then you may end up back in debt. Or you may prevent yourself from continuing to achieve your financial goals, such as buying a home or building a solid investment portfolio.

This bears repeating. Even if you've paid off your debt, it is important to stay on a budget. Sure, you may relax how strict you are and increase spending in some categories, but you should not stop budgeting completely. 

Start Building Your Emergency Fund

Now that you've paid off your debt, you probably have some extra money each month. Use this as an opportunity to pad your emergency fund. An emergency fund is a powerful financial tool because it serves as an insurance policy in the case of an unexpected financial emergency, such as job loss or large medical bills.

Many experts recommend having at last six months of living expenses set aside in an emergency fund. Remember, this amount should include any monthly bills you have, including rent/mortgage payments, grocery bills, insurance and student loan payments, and basic cost of living. Remember, your emergency fund should be relatively liquid so you can access the funds quickly and easily.

Increase Your Retirement Contributions

Many people will slow down their retirement contributions while working on getting out of debt. That's totally fine. But now that you've paid off your debt, you can work on building those contributions back up.

Contributing 15% of your income is a great benchmark to aim for when saving for retirement. If your workplace offers a 401(k) matching program, be sure to contribute at least that much to your retirement. After all, it's free money. Once you max out your 401(k), you may consider opening another retirement savings account, such as a traditional IRA or a Roth IRA.

Now that you've paid off your debt, you can allocate that extra money to your retirement fund. Remember to increase your contribution each time you get a raise, as well.

Plan for Your Future

Now that you have a bit of extra money – and have gotten rid of the burden that debt can bring – it's time to think about the next step in your life. Think about your lifelong financial goals and which are a priority.

If you're not yet a homeowner, you may consider saving for a down payment. If you have children, you should make it a priority to set aside money for their college education. Always wanted to get your MBA? Now is the time. Come up with a monthly savings plan to help you reach your next financial goal, whatever it may be.

Start Investing

Starting to build your investment portfolio is also a wise financial move once you've paid off your debt. If you don't know the first thing about investing, that's OK. Start small. Learn more about mutual funds and the stock market. Hire a financial advisor. And learn the common terms used to describe to the stock market and its fluctuations.

If you're looking for another type of investment, real estate is another option, though riskier. Regardless of the way you do it, now is the time to start building wealth.

Enjoy Yourself

So you've made a plan to build your emergency fund, pad your retirement, and began investing. Don't forget to use your newfound financial freedom to enjoy your life.

Maybe it's time to plan your dream vacation. This may mean traveling to Europe, taking an annual trip to the Caribbean or being able to take a month off of work to go hiking. Or buy that one splurge item you've had your eye on.

Now that you're out of debt, you are in a position now to do the things you enjoy the most. Take advantage of it. You worked hard to get here.