How To Catch-Up After Paying Your Debt Off
Written by
Stephanie Mickelson
Edited by
Cory Dudak
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
Paying off debt takes an incredible amount of dedication and commitment. However, using your extra money on debt repayment may cause you fall behind in other places, and you’ll need to do some planning to make up for lost time.
Follow these four steps after you pay off your debt to help you catch up (and get ahead).
1. Add to your emergency fund
An emergency fund is a chunk of money, typically three to six months of living expenses, that sits in an account, untouched, until you need it. While paying off debt, you may have kept an emergency fund of around $1,000, or you may not have had one at all
Now that you’re out of debt, the easiest way to build that emergency fund to three to six months of living expenses is by taking the money you were using for debt repayment and adding it to your savings account.
2. Assess immediate needs
If you’ve fallen behind on any expenses or home or car maintenance, or you need to take care of personal things like getting a haircut, now is a good time to address those. Make sure you have a budget, and try to get estimates for larger home or car repairs to avoid going back into debt.
3. Revisit your budget
If you’ve been actively paying off debt, then it’s likely that a large portion of your monthly income was dedicated to making extra payments. Since you’re now debt free, it’s time to revisit your budget to see what you can adjust.
For instance, you might be able to add in expenses you cut, like gym memberships or streaming services, or to allocate money for immediate needs.
4. Set up sinking funds
A sinking fund is a savings account dedicated to a specific purpose that you add to monthly. Once it’s “full,” it sits there until it’s needed. You can set up sinking funds for different categories like home maintenance, Christmas or other holidays, birthdays, vacations and more.
To figure out how much to save each month, take the total that you need and then divide it by the number of months until you need the money. For example, if you want to take a vacation in a year, take the total amount you want to spend and divide it by 12. Each month, put that amount into a vacation sinking fund.
Following these steps can help you set yourself up for financial success. You’ll be able to handle emergency expenses, attend to immediate needs, you’ll have a new, updated budget and you’ll be prepared for upcoming events.
More From GOBankingRates
