Whoa! You have finally debt-free now! It’s time to celebrate and party hard.
Well, no one is asking you to refrain from celebrations. Of course, you need to celebrate your victory since it’s not easy to pay off debts. However, this doesn’t also mean that you should go back to that lifestyle, which dropped you in a debt pool.
If you don’t want to invite financial problems in your life again, then take the following 5 steps once you’re debt-free.
1. Repair your credit: Your credit has suffered a lot due to your debts in the past. Now, it’s time to repair your credit. Pay the full balance on your credit cards to build good credit history henceforth. Keep your credit utilization ratio below 30% and don’t miss out payments.
2. Set aside money for an emergency fund: The best way to avoid debt in the future is to create an emergency fund to cover the unforeseen expenses. You may have already created a small emergency fund in your debt repayment period, but you have to inflate it now. You’re debt-free now. So, you can contribute more toward the emergency fund.
Build your emergency fund in such a way that it can help to cover your expenses in the next 6 months.
3. Set aside money for retirement funds: Debts used to eat up a lot of your savings. But now that you have evicted debts from your life, you can focus on your retirement. Life after retirement can be expensive and dreadful if you don’t have any savings. You need to save money for the golden years of your life.
Contribute money towards retirement savings plans like a 401k plan where the employer matches your contribution. Other than this, you can also participate in various investment plans to boost your retirement funds.
4. Lead a frugal lifestyle: A lavish lifestyle gives you unlimited pleasure and supreme comfort. But that lifestyle is dangerous for your financial life. It pushes you towards massive debt problems unless you earn a super fat paycheck every month. When you’re in the process of repaying debts, you have to lead a frugal life. My suggestion is, even after you become debt-free, stick to budgeting and frugal lifestyle. It will help you to avoid incurring fresh debts.
5. Set financial goals: It’s the best time to set financial goals since you don’t have any debt burden now. Think about your next financial goal. Do you plan to buy a new car or a home? Do you want to go abroad and explore some tropical islands? Do you want to get hitched or plan for a baby? If so, then start saving for achieving your financial goals one by one. If you have kids, then open a 529 savings plan for their higher education.
After you have taken all the aforementioned steps, take some time out for yourself. Enjoy this phase of your life. Plan a new vacation with your friends and family members. Or, buy something that you have wanted to have for a long time.
So, there you’re. All the 5 steps are right in front of you. Do you feel that I’m missing out any step? Feel free to share here.