So You Finally Paid Off Your Debt. Now What?

debt free
Sean MacEntee under Creative Commons

For many, debt is a fact of life — one that causes sweating brows when bills come due and interest rates are reviewed.

One survey in early 2014 reported that 28% of Americans have credit card debt that exceeds money they have in a savings account.

It may seem that the process of paying off your debt will take ages, whether it’s from credit cards, student loans or other sources. But clicking one last “Pay Now” button on your computer screen or mailing that final check is an incredible triumph for anyone who has struggled with debt.

Then it sinks in. You’ve got extra money. You’ve got hard-earned dollars that you don’t owe to your creditors anymore.

What should you do when you’ve finished paying off your debt?

Celebrate Your Accomplishment

Washington, D.C. real estate agent Rachel Choate wanted her debt gone quickly.

“I got myself into a fair amount of debt during my college years. I was in debt about eight years, but I paid most of it off in less than a year.”

Choate’s strategy: lump sums.

“I am not great at patiently making small monthly payments over a period of several years. I have a hard time seeing the difference it is making,” Choate said. “I tend to want to make as big of a payment as possible to see the debt go away faster.”

She used a large payment at the end of a job and a tax refund to lighten her load. Then, she paid well above the minimum payment each month until she hit zero.

While frugal friends helped her stay motivated, a conversation with a debt counselor helped Choate’s progress sink in.

“A couple of months before my final payment, he explained the final payments and said, ‘and then you’ll be done!’ I got really emotional and started to cry. The reality of actually being free of debt finally sunk in,” Choate said.

“And I suddenly knew that I had to celebrate this. I love throwing parties, so a big party was the obvious thing to do!”

Imagine 50 people eating, drinking and dancing to a DJ’s beats. But she didn’t keep the reason for the celebration a secret.

“A lot of people have told me that my party was an inspiration for them to focus on getting out of debt and have their own party,” Choate said.

Plan Ahead for Life After Debt

It’s all about strategy. If you were diligent about making monthly payments and scaling back your expenses, it’s time to turn that diligence into smart spending or saving.

“Not a lot of people talk about life after debt,” Carrie Smith of Careful Cents wrote in a blog post. “For many of us, it’s a harsh slap in the face.”

She wrote that normal expenses can be emotionally paralyzing, causing worry about overextending your finances or making the right spending choices.

The reality: You’ll never be able to float through life without monitoring your finances. Take some time now to mentally prepare for your new financial opportunities after debt.

“Have a purpose for the money once you’re no longer paying down debt,” Smith said in an email.  “We all know how easy it is for money to disappear if it doesn’t have a purpose.”

Choose a new financial goal, like saving enough for a down payment, maxing out your 401(k) or IRA annual contribution, or something else meaningful.

Smith admitted that watching your savings grow can be less exciting than seeing your debt decrease.

“Find ways to motivate yourself, and your family, so it’s not a chore,” she advised.

Go Ahead, Make Big Plans

For some, a debt-free life is a chance to live just a little bit larger.

Hillary Esquina, a video producer in northern Virginia, spent more than two years working with her partner to pay off their credit card debt. During that time, they were also able to pay off her wife’s student loans and both of their cars.

“The two-and-a-half years were difficult because we had to stay on a strict budget,” Esquina said. “Once we had that extra cash, it was hard not to just want to spend it.”

Once both cars were paid off, Esquina said they sold them in exchange for one car that was better suited for their weekend passion: transporting rescue dogs to their new owners.

They also saved a portion of that spare change to fund their honeymoon, a two-week road trip along the West Coast.

Fire Up Your Savings Account

The couple also has a few items they’re saving for, which they consider splurges. One is a large dining room table to use for holiday dinners and game nights.

But they’re still looking at a long-term goal: a healthy down payment when they’re ready to buy a home.

“You have to have goals in mind,” Esquina said, “which will help keep spending in check.”

With debt out of the way, Choate also has a new goal to build up her savings. She would like to buy her own house to live in with a group, and wants to save enough for a 25% deposit.

She’s still using her credit cards, but with new wisdom: “I am careful to always have a plan of how any debt I incur will be paid off, within at most three months.”

Your Turn: If you’ve successfully paid off your debt, what are your new financial goals? If you’re still working on it, what will you do to celebrate once you’ve made that final payment?

Lisa Rowan is a writer, editor and podcaster based in Washington, D.C.