I’m finally debt-free… now what?

I'm finally debt-free... now what?Navigating the world after becoming debt-free can be a confusing journey. In this article, we provide comprehensive suggestions on how to wisely manage your newfound financial freedom and avoid falling back into the debt trap.

Spoil Yourself with a Major Purchase

Congratulations on becoming debt-free! This achievement deserves a reward. After all, it required years of financial discipline and sacrifice. Why not treat yourself, within reasonable limits, of course?

Use the funds previously allocated towards debt settlement to make a significant purchase. Ideally, this should be an item valued at one or two months’ worth of your earlier debt payments, such as a high-quality laptop or a smartphone upgrade.

For instance, if you were previously contributing $500/month to eliminating your debt, next month you could use the spare $500, or amass $1,000 over two months, to treat yourself. Be cautious, however, not to let this one-time expenditure become a recurring habit.

Enhance Your Monthly Spending Plan

Having cleared your debt, your budget now has room to breathe. While it might be tempting to keep rewarding yourself indefinitely, your newfound surplus should be split between everyday expenses and saving for the future.

How you divide the money between these two aspects is entirely up to you. A 50/50 split could be a good starting point. For example, if you were previously spending $400/month to pay off your debt, you could now inject $200 back into your budget and divert the remaining $200 towards long-term savings.

You can now afford to elevate your daily life: upgrade your streaming plan, indulge in your favourite beverages, and stop declining social events. However, remember to allocate only a portion of your new cash flow for these pleasures. Striking a balance between lifestyle upgrades and fulfilling your financial goals is crucial.

Re-evaluate Your Overall Finances

With no more debt payments to worry about, it’s time to give your finances a thorough review. There are multiple areas you can enhance and expenses you can reduce.


Your life insurance or critical illness and disability coverage is a good place to start. Reflect on your coverage; does it need to be extended? Perhaps your debt payments were limiting your ability to get sufficient coverage. Now, you’re in a position to upgrade your policy.


Regardless of your current age, retirement is inevitable and you should be prepared. Consider setting aside a part of your newfound lump sum for retirement savings, like in an IRA for instance. Decide on a monthly contribution and be consistent in depositing that amount.

Accelerate Paying Off Remaining Finances

Have a mortgage? Financed a vehicle or a significant purchase? Still servicing your student loans? Now that you’re debt-free, you can focus on these financial obligations! Determine which of these payments needs the most attention and start increasing your contributions to clear the debt faster.

Draft a Will

With your extra funds, you now have more financial leeway each month. Whether you decide to invest in an IRA, save for a down payment on a property, or any other financial goal, having a will to safeguard your assets is advisable. A will ensures your wealth is distributed according to your wishes if something were to happen to you.

Creating a will doesn’t have to be complicated. Online services like LegalZoom can help you craft a fully customised will in less than 30 minutes. Prices start as low as $89.

Being debt-free significantly alters your financial landscape, so take some time to assess your overall financial picture.

What to Avoid After Becoming Debt-Free

After battling and finally overcoming a massive debt, you might feel so liberated that you end up accumulating a new debt. Sadly, many people fall into this trap. Here are some ways to avoid it:

DON’T Abandon Your Proven Budgeting Techniques

While paying off your debt, you likely made various behavioural adjustments to meet your goals. For instance, you may have stopped using credit cards or taken up a part-time job for added income. Now that you’re debt-free, don’t abandon these beneficial practices! Continue to spend cash only, and channel any extra income towards a savings goal.

DON’T Stop Seeking Ways to Save Money

With no more debt to worry about, you might start becoming reckless with your spending. Even though you no longer need to clip coupons or compare prices, it’s still good practice. Being debt-free doesn’t mean you should overpay!

DON’T Finance a Large Purchase

One of the riskiest thoughts after becoming debt-free is believing that having debt “wasn’t so bad”, so you decide to take on new debt for a desired item. Remember, even though you successfully paid off all your debt, you never enjoyed the process!

Closing Thoughts on Living Debt-Free

The greatest advantage of being debt-free is the reduction in financial stress. Regardless of how you choose to use your money after clearing all your debts, the most important thing is that you enjoy your financial independence, continue to be financially responsible, and keep growing your net worth!

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