Paying off debt is a huge accomplishment, whether you dug out from a mountain of student loan debt or you’ve finally nixed your shopping habit and paid off your last credit card thanks to a personal loan for debt consolidation. You’re likely feeling a bit lighter than when you were in debt. Yet once you achieve a debt-free lifestyle after months or years of intentional debt repayment, it can be challenging to maintain it.
However, staying debt-free can provide financial security that allows you to live life to the fullest and save money for future financial goals. Here’s what you need to know about how to stay debt-free after paying off debt.
Create A Budget
A budget is a spending plan based on your income and expenses. With a realistic budget, you can ensure you have enough funds for your needs and wants. While there are several different types of budgets, the zero-sum, pay-yourself-first, and 50/30/20 budget tend to work well for many people.
- Zero-sum budget: Every dollar of your income has a “job”. You’ll allocate it to a specific expense, like savings or debt payment, which should leave you with no money that’s left unassigned.
- Pay-yourself-first budget: You prioritize saving a set amount of funds before budgeting for other expenses to make sure your savings goals are met first.
- 50/30/20 budget: You allocate 50% of your income to needs, 30% to wants, and 20% to savings or debt repayment.
Each of these budget systems accounts for necessities like food, housing, and transportation but also recognizes that you need to allocate money for wants, like dining out, seeing a concert, or traveling so you don’t feel like you’re missing out living life while taking care of your personal finances.
Work With Your Partner
If you share finances with a partner, it’s essential that you’re on the same page. Both of you need to be open about your finances and support one another when times get tough. It can be difficult to avoid debt unless you’re both committed and willing to make some sacrifices to stay out of it. Scheduling a monthly financial date night can be a fun way to connect about finances while enjoying a glass of wine or a homemade meal.
Build An Emergency Fund
An emergency expense can pop up when you least expect it, and if you’re not prepared, it can quickly lead you back into debt. Whether your car breaks down, you face a sudden medical bill, or you lose your job, an emergency fund can provide you with the money you need during a financial roadblock.
Most financial experts recommend you save between three to six months of expenses in a high-yield savings account. However, depending on your job security, family size, and risk tolerance, you may want to save a bit more or less.
Repay Credit Cards
Credit cards can be convenient financial tools to cover everyday expenses. They may even allow you to earn rewards like cash back or travel points. If you use credit cards, make it a priority to pay them off in full by their due dates.
Otherwise, you’ll be on the hook for potentially high interest charges, which can quickly snowball into recurring debt. Using your credit cards wisely lets you keep money in your pocket while earning cash or points to spend on something fun.
Consider Additional Income Streams
The more cash you have at your disposal, the easier it will be to stay out of debt. If you’d like to earn more money, it may be worthwhile to pick up a side hustle or a part-time job in addition to your full-time job. You can babysit, deliver groceries, tutor, or sell items you no longer want or need.
Invest For Your Future
No matter your age or stage of life, investing is important. While it may be intimidating if you’ve never done it before and recently became debt-free, investing can allow you to build your nest egg for retirement, pay for a child’s college, or meet other financial goals you might have. You can start with a 401(k) through your employer or open an IRA on your own and explore other options, like a taxable brokerage account, as you get more comfortable.
A Debt-Free Lifestyle Is Possible For Years To Come
If you love the debt-free lifestyle you’ve worked so hard to create, rest assured you don’t have to give it up any time soon.
With patience and planning, you can avoid debt and work toward your short and long-term financial goals.
