You have made a plan, sacrificed, diligently made payments toward your debt, and now you are free! Bask in this feeling and celebrate how far you have come.
However, this is no time to rest on your laurels. If you go back to your normal spending habits, you may find yourself in the exact same position in the future. Just as someone who loses weight by going on a strict diet is prone to gaining the weight back once they return to their previous eating habits, you need to rebuild your financial habits in a way that you will be able to go on without slipping back into debt.
You may need some new goals now that you are debt-free. Here are my suggestions.
Rebuild your credit
If credit card debt is your problem, you may need to rebuild your credit score and set boundaries for how and when you use your card. I know some people who use credit cards only for things like gas and groceries, using cash for other purchases. Others I know use their debit card so they cannot spend more than they have in their bank account (just remember that even with a debit card it is safer to run it as credit when given the choice).
Part of rebuilding your credit is paying your bills on time and in full. Punctual payments will go a long way toward rebuilding a credit score, though it will take time to work your way back up. Be patient and your good habits will pay off.
Adjust your budget
Now that you aren’t putting a large portion of your monthly income toward paying off debt, you need to take a look at your budget and figure out where you want that newly-free money to go. Before you move it all to your “fun” budget, take a look at the other areas you cut while you were paying off your debt. You may be able to add some back now.
Build new spending patterns
While you are looking at your budget to decide where to put the “extra” money, consider not increasing any areas and instead saving that money. If you have made deep cuts that you cannot sustain over the long term, add back to the right categories and then add to your savings. Train yourself to spend your money differently.
The average American is not doing a great job of saving for the future, especially for retirement, so decide not to be a part of that depressing statistic. Remember that one day you will have to live off the money you have put away because you will not be earning the same income you are now. It is good practice to live off less and put some money away each month in preparation for that day, even if it is far away.
Commit to staying out of debt
You have laid a good foundation: you are out of debt (or out of bad debt) and you’re ready for a clean start. Commit to keeping your financial life that way.
If you are afraid you will forget how good it feels to be out of debt, write your future self a letter describing how things are now and how you feel and pull the letter out periodically to remind yourself of your goals. If a picture will help you remember the feeling, take a photo of shredding debt statements or a list of your debts with every line crossed through. You may need something to jog your memory later when you want something that you cannot quite afford.
Most of all, be proud of your progress. It is not easy to deny yourself something today for a potential good tomorrow, but as my mother would say when telling me to do something unpleasant, “it’s character-building.” Self-control will only help you in life and you have just put in good work achieving a greater measure of it.
Keep up the good work!
Photo used under Flickr Creative Commons.