Many of us have a goal to pay off debt. However, when you’ve been working toward the goal of paying off debt for a long time, it can be difficult to adjust once you have reached your objective. This is especially true if you have taken a long-term approach to your debt pay down, employing the debt siege method.
Now that you’re debt free, it can be tough to figure out what to do with the money that used to go toward your debt payments. Here are some things to consider as you try to figure out how to remain debt free and put that money to good use.
Don’t Increase Your Spending on Other Things
One of the most tempting things to do in this situation is to increase your spending on other things. Now that you no longer have to make debt payments, it’s easy to get carried away in dreams of new furniture, more date nights, and more eating out. However, before you start spending this money, take a step back.
You are probably used to a more frugal lifestyle now, and that isn’t a bad thing. While there’s nothing wrong with celebrating, you don’t want to turn the fact that you are now debt-free into a situation in which you engage in lifestyle inflation. Remember that there is a good chance that out of control spending is what led to your debt situation to begin with, so you don’t want to end up back where you started. Think twice before spending that “extra” money each month — especially if the spending results in a long-term lifestyle upgrade.
Put That Money Into Something Else
Since you are already used to making monthly payments, now is a good time to put that money into something else. Increase your retirement account contributions. Boost your emergency fund. Start a 529 account for your child’s college education.
You don’t even have to put the entire amount toward the same thing each month. You could easily divide the money up. Put part of it toward the future, and then start setting the rest aside for other specific goals. You can use the money to save up for a vacation, or to save up to buy a new car. You might even begin saving up for a down payment on a home. Even if you use the money for something like a vacation or car, it helps that you are saving up for it, rather than using the money for some sort of instant gratification or expense that will add to your monthly burdens.
Before you start spending the money, sit down and make a plan for it. Think about how your goals and priorities have changed since you have paid off your debt, and think about what you want your financial future to look like. Set new goals based on the future, and you will be able to come up with a better plan for your money than simply frittering it away on things that don’t really matter to you in the long run.