You have finally managed to pay off that debt that has been hanging over your head for many years. How does it feel? Well, there is a high probability that you have a feeling of relief or as if a large weight has been lifted from your shoulders. Now that you have finished repaying your debt, what’s next? Here are five financial steps to consider.
1. Treat Yourself
There is a high chance that you had sacrificed most of the things you love, just to finish paying off that debt. Now that you don’t have to service a debt anymore, you can use part of that money to treat yourself.
For instance, you can go for a weekend vacation or treat yourself to a hearty dinner with your loved ones. Treating yourself is more of a reward. You are congratulating yourself for a job well done. However, don’t overdo it.
2. Establish Your Financial Goals
Now that you have given yourself a memorable treat, this is the best time to prioritize your financial goals. Assuming that you already have a budget, you are using this opportunity to identify where you need to channel your savings.
If you have cleared all your debts, you can use the extra money to save for retirement. However, if you still have a pending debt, you should start repaying it immediately.
3. Save Money For College
Do you have a dependant close to joining college? If yes, then you should consider channeling the money that you were using to pay debts into college education. Commonly known as 529 accounts, saving your money this way allows you to enjoy tax incentives.
It’s therefore a smart way to save for your child’s college education. However, you should note that the rules for a 529 account change from one state to the other.
4. Boost Your Emergency Savings
If you were not saving money for emergencies due to your debt situation, this would be an appropriate time to start an emergency fund. Emergencies tend to strike when they are least expected.
Therefore, it’s always advisable to be prepared. If not, you might find yourself in more debts. Ensure you channel at least a third of the money you were using to pay debts to your emergency savings account.
Save until you have sufficient income to last you for at least six months in case you find yourself in a situation where you are no longer earning.
5. Avoid Further Debts
When you clear your debts, you might be tempted to take another one. In fact, credit card companies encourage people to take further debts once they have finished repaying the previous ones.
However, if you take another loan for an unnecessary expense, you may never dig yourself out of that hole. Therefore, avoid all forms of debt, regardless of how big or small they are.
Final Thoughts On The Financial Steps To Take After Paying Off Debts
Now that you have finished paying off your debts, you might feel like this is the best opportunity to spend lavishly. However, you need to stick to your budget and avoid borrowing more than you can afford by following these financial steps.
You don’t want to find yourself with another debt, just because you made poor financial decisions.