version 3, draft 3

How to Stay on Track When You've Just Come Out of Debt

So, after years of hard work, you’ve finally paid off your debt. You’re debt-free and proud of your decision to sacrifice and reduce spending. But although your financial situation is good today, this can change in the future.

Unfortunately, a lot of people who pay off debt re-accumulate balances in just a few short years. This happens because many resume bad spending habits. But there are ways to stay on track after paying off debt.

1. Don’t apply for new credit cards

Once you’ve paid off your debt, the slate is clean. However, now that your credit cards and other accounts are at a manageable level, you may feel that you can handle applying for new credit. Maybe there’s a credit card with a fabulous rewards program, or maybe you want a credit card with your favorite retail store. However, applying for a new credit card only increases the temptation to spend. If you want to stay on the right track after coming out of debt, you need to avoid any decision that could potentially put you back into debt.

2. Start a savings account

Even after paying off debt, one emergency can put you back into debt. This is especially true when you don’t have a savings account. Now that your debt’s gone, put your disposable income into a savings account. If you were putting $300 a month toward paying off a card, start putting this money into savings and you’ll save about $3600 a year for emergencies.

3. If you use a credit card, pay the balance in full every month

Sometimes, you will need to use a credit card. If you do, here are two things to remember: only charge what you can afford, and always pay off your balance in full each month. Practice these two rules of thumb and you can stay in control of your credit card balances and avoid debt.

4. Create a spending plan

A good spending plan is another approach to staying on track after you’ve come out of debt. With a spending plan, you basically decide how much to spend in all areas, from transportation to groceries. This is similar to a budget. You can track where your money goes and monitor spending throughout the month to ensure there’s enough for expenses. When you have enough cash for expenses, you’re less likely to use a credit card.

5. Save up for purchases

Not only should you create an emergency savings account, you should have a savings account that’s specifically for things you’re looking to purchase in the future. Many people get into debt because they want instant gratification, and they buy items they can’t presently afford. To stay on the right track after coming out of debt, save up for purchases – even if it takes several months. With this approach, you’ll own the majority of your stuff free and clear, and you won’t have credit card balances.

It’s easy to get into debt, but it’s not that easy to pay off balances. Therefore, staying on track after paying off debt requires a good plan and smarter financial habits.


Photo Credit: Flickr



Get our FREE eBook!
'6 Steps to Landing Your Next Job'





Get our FREE eBook!
'6 Steps to Landing Your Next Job'

G up arrow
</script> </script>