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Steps You Should Take AFTER You Pay Off Your Credit Cards


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It's the big day! Whoopee! You've graduated to an elite group of consumers who have paid off all of their credit card debt. Congrats! Okay, so there's no pomp and circumstance, no commencement speeches and no one is handing you a diploma, but there's definitely a great reason to celebrate. So, give yourself a high five! You should be proud of your persistence and sacrifice, and soak in the feeling of freedom that comes with being free of credit card debt. 

Once you've paid off credit card debt, though, it's time to adjust your financial plan now that it doesn't include the burden of high-interest credit card debt. Now, you can concentrate on eliminating some of the other financial debt that you may have incurred or other financial goals on your "to do" list.

1. Create an Emergency Fund

If you haven't already, your first item on your financial to do list should be to build a comfortable emergency fund. Now that you've tackled your credit card debt, you should have access to reserve funds to build a cushion just in case something unexpected happens. A comfortable emergency fund is so critical because it would be devastating to be forced to charge your credit cards right back up because you experience an unavoidable life expense and have no savings to cover it. The amount you should save will vary from person-to-person, and sometimes even from year-to-year based on your living expenses, debts, and dependents, but most experts recommend having six to twelve months of cash reserves for an emergency fund. 

Learn more about building your emergency fund here.

2. Address Other Debts That Have High-Interest Rates

Start by examining the interest rates you have on other debts such as automobile(s), home(s), furniture or appliances, and/or student loans. Make a list of your bills so you have a clear picture of what you owe, then you can decide to either pay accounts with the highest interest or the ones with the smallest balances, rolling over those funds in a "snowball" fashion to eliminate them altogether.

As you probably learned when you were working on paying off your credit card debt, the fastest way to reduce debt is to increase your monthly payments. Paying only the minimum balance means that the majority of your money is only going toward interest, rather than principle. Surprisingly, it doesn't take an enormous amount of extra money on your monthly payments to make a huge impact. For example, an extra $100 a month on a $200,000 30-year mortgage with a 5% interest rate could yield $37,070 in savings over the life of the loan. 

3. Beef Up Your Retirement Savings 

If you're not already saving for your retirement, this should be very high on your priority list. Whether through an employer-sponsored plan or by working directly through a financial advisor, you have many options when it comes to your retirement savings. If you are already saving for your retirement, consider beefing up your contributions. Even a 1% increase can make a huge impact. If you're not sure where to start, or how much extra you should be saving, speak with a financial advisor to evaluate your long-term goals and review all of your options.

Related reading: Is Your Retirement Savings on Track? [Infographic]

4. Refrain From Using Your Credit Cards, But Keep Them Active

Just because you have paid off your credit cards and stopped charging doesn't mean you should close those accounts. Canceling your cards could actually damage your credit score because you'll have less available credit and your account history won't be accessible. However, if holding on to the cards causes too much temptation to spend more than you can afford, closing those accounts may be worth the temporary dip in your credit score if it prevents you from overspending and racking up high balances.

5. Change The Way You Charge

If you do decide to continue to responsibly use credit cards, find accounts with the best interest rates and/or rewards. You should also consider setting up auto-pay for balances and make wise decisions on what you charge and what you pay for with cash. The goal in this new phase of your financial journey is to pay your credit card balances in full—if at all possible—to avoid paying interest and fees, and to get and maintain a healthy credit score.

Unfortunately, in today's society, many people have resigned themselves to thinking that they'll never pay off their debt. In fact, 13% of Americans say they’ll never pay off all their loans, and another 8% say they won’t pay off what they owe until they’re at least 71 years old, according to a survey commissioned by creditcards.com. You, however, are proof that with hard work and dedication, you can pay off cumbersome, unwanted debt. 

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