You should do nothing, absolutely nothing. Don’t get me wrong, as the day you become debt-free is an important point in your life. Having no debt payments will also drastically increase your cash flow, but you really shouldn’t wait until the day you are debt free to act.
Becoming debt-free doesn’t happen overnight, and you should know months ahead of time (at least!) before your last payment is due. Therefore, you should plan for the money that will be freed up when you don’t have to put that towards paying off debt.
Here are some places to consider putting your money at work:
• Chances are good for savings or retirement fund. You should consider doing this right away to maximum the tax-advantages with the extra cash. If you don’t save it, you will likely lose it to careless spending.
• Emergency fund – Some will argue that most people who are debt free already have an emergency fund in place but most people actually don’t. I’m not talking about the money that we have in a safe stock. I’m talking about money that we can take out at anytime without thinking about the value of our account in the event of an emergency.
• Automated investments – Hopefully, you set up automatic payments for your debt and not needing to remember all the payments helped you simplify your finances over the years. Now that the burden is lifted from us, this should be the time we put the extra amount of money to grow for us. Low cost index funds are always recommended and having it automatically taken out of your income to be invested is even better.
• Upgrade your lifestyle – Maybe not the advice most articles will put down, but this is the opportunity to really think about your goals and see if you should upgrade your lifestyle a little bit. With proper planning you should be able to afford a higher quality of life, but remember that you also need to still keep your retirement in mind. Reward yourself, but don’t lose sight of the big picture.
• Celebrate – You really need to plan your celebration so that you don’t blow too much money. Just like a birthday party, the day you become debt free should be marked down and celebrated like any other day. Perhaps it’s a nice vacation with your family, or maybe it’s a prized possession on your dream list. As long as you can afford it, then why not? Remember to also make a toast one day and congratulate yourself on a job well done.
Just like paying off your debt, planning on what to do with the extra cash takes discipline. Otherwise, you might waste years of effort by spending excessively. Be committed to become financially free, and you will get there rather comfortably.
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