You’re Finally Debt-Free. Now What?

Phroogal Paid in Full

A friend of mine reached out to me to share some great news. He just got out of debt. This is definitely amazing news and I was excited to hear it. The next question didn’t surprise me when he asked, “What does a person who gets out of debt do next?”

It’s a logical question.

Phroogal Out of Debt

For many of us the goal of paying off debt seems like an insurmountable feat. But, with the right attitude and the willingness to make changes in habits, it can be done. So why do many people wonder what’s next?

This happens because we’re only told to set financial goals.

I’ve talked about goals a number of times in various posts on budgeting and spending habits. There are two types of goals but for some reason we’re taught to only focus on financial goals. However, the main goal that I push is setting a lifestyle goal.

Financial goals are always tied to spending. I need to save for a car, buy a home, send my kids to college or paying off debt. These aren’t lifestyle goals. They are pitstops along the way of you living life. If you decide to spend way above your means, it might mean you’ll be at that pitstop longer than you really wanted. Overspending leads to debt thus limiting oneself from experiencing life.

Phroogal Living the Lifestyle

A lifestyle goal is how you envision living your life. If you could have all the money in the world what type of life would you be living? This is a very lotto fantasy type question. Well, just think of the reasons you or millions of others buy a lottery ticket. It allows you to envision the type of life you’d want to live.

For some reason we can only think about living life when we don’t have the stress of financial obligations. Some of which we place on ourselves.

When you take out the desire to spend to make yourself feel happy. You will be surprised that all you really wanted was to make more memories with those you love.

Okay, we got that out of the way.

So what should you do after you’ve paid off debt?

Make sure you don’t get into debt again!

Now, I understand my friend is asking what to do with all the freed up cash. For one, it’s important to make that money work for you. That means putting it into a savings account and an investment account. Create a solid emergency fund and start to become more aggressive with your retirement planning. That means putting more into a 401(k) and an IRA.

What I’ve seen happen with many people who get out of debt is dive back in it. I’ve done that a number of times. Something happens in our brains once we’ve overcome what seems impossible. We’ve been through it so we know we can get out of it. This can lead into rinse and repeat. Just make sure you repeat the good things not the bad.

Phroogal Paid in Full

What Happens After Debt Repayment

With a clearer mind, you can begin to start thinking about the life you want to live. If you haven’t set a lifestyle goal, set one now.

  1. Define the life you want to live.
  2. Understand the cost associated with that life.
  3. Begin budgeting to achieve that life. Budgets help you reach goals.

These 3 steps can also help you overcome the hurdle of debt.

A lifestyle goal is a big motivator that leads to sounder financial decisions. It might make you buy the used car over the new one. It could mean exploring Europe versus the bar crawls and dinners.

It’ll make you prioritize savings so you get to do more of the things you want rather than working to pay for the things you own. You’ll learn the differences between needs and wants. 

If you work towards your lifestyle goal, you’ll never have to ask the question, “What do I do next after debt?” ever again.

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  1. Hey Jason! It’s interesting that some of us go back into debt after getting out of it. For me, the free feeling of getting out was so good, I was terrified to do anything that might put me back in debt. Maybe that’s because I’m too fear-driven!

    But what a great feeling, being debt-free. I think your Step 1 says it all: “Define the life you want to live.”

    1. Thanks Kristin. It’s really important to define that life and it’ll help with making it happen. What I did wrong in the past was continue to do what I was doing. I didn’t want to get into that financial hole again but I also didn’t know what I wanted. So the spending on useless and frivolous things continued.

  2. Getting out of debt is such and exciting and weird thing at the same time. I don’t think there’s anything wrong with a little lifestyle inflation, but figuring out how to balance it with building up an emergency fund and funding your retirement can be tricky.

    I think you’re right – people who don’t have a plan are often the ones who slide right back into debt. Knowing and prioritizing your financial goals makes that transition simpler. And you can get the same sort of satisfaction with watching a portfolio grow as you can watching a debt balance deplete.

  3. Some people also get used to repaying debt and experience anxiety being debt free. Crazy but true, I know from 1st hand experience. So we go ahead and buy those things we want and get comfortably back in debt. Having matured a bit from that experience, tomorrow I will be debt free again for the 2nd time in my life and I can’t possibly imagine having the confusing feelings of anxiety again. I highly recommend that if you are used to making payments every month, keep doing so but into a tax free savings account or other savings.. after increasing your allowance slightly of course.

  4. All going well I should be debt free (again) in late February/ early March. This time I am planning to be smarter, to have goals set and a stick to my post debt budget – religiously!
    I am glad I found your site as I have found very little online about ‘life after debt’ and I know that it is even harder to live without debt after you have cleared all your debt. It really is hard to go against the crowd. Being debt free is not encouraged in the western world and being in debt in some non western countries is a crime! The world is one weird planet, ah!

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