Congrats, Your Debt Is Paid Off! Now What?

What to do when you finally reach a financial goal.

By Navy Federal June 22, 2017

When you’ve been working toward paying off a car loan, student loan or mortgage, you’re hyper-focused on your goal. Often, you don’t think about what happens after the loan is repaid. Once you see those three little words, “paid in full,” it may feel like a giant weight has been lifted from your shoulders—but you might not know what to do next. Here are some tips to help you continue on a path of financial health and stay out of debt in the future.

Set Your Aim for Another Debt

Paying off a major debt like a car loan or mortgage will free up a portion of your monthly budget. The first thing you should consider is putting the same payment amount you’ve already been making toward paying off other loans and credit card debt. Start with paying off the debt with the highest interest rate first. Paying off more than the minimum amount each month allows you to pay a greater percentage of the principal on your loan and even save on interest over the long term.

Create a Safety Net

Here’s a short-term goal that just might save you one day: an emergency fund. Calculate the total of three to six months of your net income and save until you’ve met your goal. You can set up a Basic Savings account for your emergency fund—the focus is on access, not interest. Now if an adverse life event occurs—loss of job, accident or car repair—you won’t have to go back into debt to survive it.

Save for a Major Purchase

Now that you’ve successfully worked toward a financial goal and achieved success, roll that confidence into a new goal. Two common savings goals are a new car or the down payment on a house. Set up an automatic transfer from your checking account to your savings account so monthly “payments” into savings are a no-brainer.

Start Retirement Savings

The sooner you start, the better off you’ll be. If your employer has an employer-sponsored retirement plan, enroll and arrange for automatic deductions from your paycheck to be deposited into your account. If you’ve been making modest contributions while paying your loan off, you can increase the percentage now. Aim to contribute at least as much as needed to fully take advantage of any employer match. Free money adds up!

If you don’t have access to an employer-sponsored retirement plan, consider an Individual Retirement Arrangement (IRA). Traditional and Roth IRAs have different tax benefits, but both are appropriate for retirement savings. Other investment options include mutual funds, stocks and bonds. You can use a savings account to build toward a small nest egg to invest and grow over time.

Proceed With Caution

Often when people are repaying a loan, they feel deprived. Once the debt is repaid, it’s a natural reaction to want to spend freely. However, the last thing you want to do is wind up back in debt. Continue to use the self-control you’ve mastered and stay debt-free for the long haul.

This article is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.