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HomeBlog Debt ReliefJust Paid Off a Debt? Here’s 7 Financial Steps You Could Take Next
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Just Paid Off a Debt? Here’s 7 Financial Steps You Could Take Next

September 1, 2016 by National Debt Relief

Husband and wife happily talking to another personPaying off a debt just has to be one of the best feelings in life. That debt has been hanging over you for maybe two years or longer and now it’s gone. You may feel as if a large weight had been lifted off your shoulders or maybe you just have a nice feeling of relief that whew! I don’t have to make that payment anymore. This can be an especially great feeling if the debt you paid off was a big one such as a car loan. But even if it was a smaller debt it can still feel terrific to get rid of it.

But now that you have that debt paid off, what comes next? Here are seven financial steps you could now take. Of course, you will not be able to take all of them at once but you should at least consider putting them on your to-do list.

1. Give yourself a treat

Since you won’t have a payment to make on that debt next month spend the money on something to reward yourself. You might have a special meal out or buy something you’d been putting off for months like a new desk chair, a weekend trip or a gas grill – depending, of course, on the size of that payment you no longer have to make. The important thing is to choose something fun that will be a nice reward for having paid off that debt.

2. Establish your priorities

Once you’ve rewarded yourself now would be a good time to establish your financial priorities such as how much you can now save each month or what debt to pay off next. The idea here is to determine what would be your next highest priority. Some experts would advise you to put the extra money you now have into your retirement savings account while others would counsel you to pay off your debts first. There’s no definitive answer to this. It will probably depend on what other debts you have to pay off and how much you’ve been able to put into your retirement savings account each month. Of course, if you’ve not been able to save anything then the answer would be clear — use the money to fund either a traditional or Roth IRA.

3. Boost your emergency fund

Of course, this assumes you have an emergency fund. If not, you definitely need to start one. If you have one, it’s likely that repaying your debt came at the expense of your emergency savings account. You should put one-third of that payment you’re no longer making into your fund every month until you’ve fully funded that account, which means having the equivalent of six months of your living expenses in your emergency account. Most experts say you should put the other two-thirds of that payment into funding your long-term goals.

If you’re like many Americans and are having a hard time funding an emergency fund, here’s a video with 11 suggestions for doing things to raise money for your fund.

https://www.youtube.com/watch?v=mlQgoch-5A

4. Reroute that cash into your long-term savings

If you have a 401(k) through your employer, you might use that cash to boost your contributions. This year the IRS says if you are under 50 you can contribute up to $18,000 or if you’ve over 50 up to $24,000. If you have a traditional IRA you can contribute $5500 until you reach the age of 50, after which you can contribute up to $6500. The amount you could contribute to a Roth IRA is more complicated and you will need to go to this page to determine what yours would be.

woman putting coins in a piggy bank5. Save the money for a college education

Do you have a child or grandchild headed for college? Then you should consider putting that extra money into a 529 account. This plan is what’s called a tax favored savings account and can be a very smart way to pay for a college education. These plans vary from state to state so you will need to go to a 529 Finder to determine the plan options available to you. For example, where we live there is a CollegiateInvest Direct Portfolio and a Scholars Choice College Savings Program. But in the state of Arkansas there is the Arkansas 529 Education Savings Plan and a Gift College Investing Plan. So if you’re interested in saving for a college education be sure to go to the 529 finder page to learn what plans are available in your state.

6. Save the money for your next big purchase

If you save the extra money you now have from paying off that debt you should be able to make your next big purchase without having to use credit. Establish a savings goal and then work towards it. This could be a new car, a big home renovation project or a dream vacation.

7. Avoid going back in debt

If the debt you just paid off was a big credit card bill you will need to make sure that you change what’s necessary to avoid doing it again. Once you’ve paid off a credit card bill the last thing you want to do is start accumulating new credit card debt. There’s a reason why the credit card companies love people that run up debts on their cards. It’s called compounding interest. Some have called it the most powerful force on earth. Whether this is true or not, one thing is certain. If you fall back into the habit of carrying your balance forward on a credit card, you will end up right back where you started — with a big debt. Here’s an example of how this happens. Let’s say you owe $5000 on a credit card at 18% interest and make just the minimum payment each month. When this is the case then, believe it or not, it will take you 273 months to pay off that debt and cost you $6923 just an interest.

Choose wisely

Since you will obviously not be able to take all seven of these steps at once, choose wisely. Pick the one or two that make the most sense to you and that would do the most for your financial future. Then, start using that new found money to achieve your goal or goals. It should feel pretty terrific to not only have paid off that debt but to have a new goal you can start working towards that will mean a better future.

Frequently asked questions about debt

Q. What is debt to income ratio?

A. You can calculate your debt to income ratio by dividing your monthly gross income into the total amount of your monthly debt payments. For example, if your gross monthly pay was $5000 and your monthly debt payments totaled $2000 your debt to income ratio would be 40% which potential lenders would view as too high.

Q.  What debt is forgiven after death?

A. This answer is simple. Any one that was just in your name belongs just to you and is forgiven. It is not passed on to your family members when you die. However, if you have a debt such as a mortgage that’s held in both your and your spouse’s name then the surviving spouse would be responsible for repaying it.

Q. Why debt is a good thing?

A. A small amount of debt is a good thing assuming you make your payments on time every time. This is because it will help you build good credit reports and a high credit score. You want a high credit score because this will allow you to get credit at low interest rates, which will save you money.

Q. When debt is too much debt?

A. If you calculate your debt to income ratio and its higher than 30%, that’s too much debt. And maybe this goes without saying but if you find you’re unable to make all the monthly payments on your debts then you have too much debt.

Q. What happens when debt collectors take you to court?

The first and most important thing that happens is that you need to show up in court at the appointed time. If you fail to do this, the collector will automatically be awarded a judgment against you. When you meet with the debt collector in court you could try to negotiate a settlement. Most debts are purchased by debt collectors for literally pennies on the dollar. This leaves a lot of room for negotiation.

Q. What happens when debt is written off?

A. If a lender concludes that you will not be paying off  what you owe then it will write it off. But this doesn’t mean your debt goes away. What will likely happen is that it will be bundled up with a number of other debts that were written off by that lender and sold to a debt collector.

Q. Are debt consolidation companies worth it?

A. The answer to this will depend on the type of consolidation company you choose. One way to achieve debt consolidation is by going to a consumer credit counseling agency. This would be worth it because reputable credit counseling companies charge very little for their services and can usually help you become debt free in 4 to 5 years.  A second option for debt consolidation is to hire a debt settlement company. This will not only consolidate your debts but should save you money as, on the average, a reputable debt settlement firm will save you anywhere from 30% to 37% of what you owe even after their fees.

Q. Are debt collectors legal?

Debt collectors are definitely legal. However, what they can and can’t do is regulated by the Federal Trade Commission. For example, debt collectors are not allowed to call you prior to 8:00 AM or after 9:00 PM unless you agree. They are also not allowed to harass you with repeated calls, misrepresent the amount you owe or talk with anyone but you and your attorney (if you have one) about your debt.

Do you qualify for debt consolidation?

National Debt Relief
National Debt Relief

National Debt Relief is one of the largest and best-rated debt settlement companies in the country. In addition to providing excellent, 5-star services to our clients, we also focus on educating consumers across America on how to best manage their money. Our posts cover topics around personal finance, saving tips, and much more. We’ve served thousands of clients, settled over $1 billion in consumer debt, and our services have been featured on sites like NerdWallet, Mashable, HuffPost, and Glamour.

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Moderate National Debt Relief Caller: Charlotte Transcribed WE 1/24/2021 Charlotte: Before I begin, I have to let you know that our call may be recorded. Can you tell me, how did you first hear about our National Debt Relief? JOAN: Oh, I don't know. I don't remember. I don't know how I heard about it. Charlotte: What made you decide to work with them? JOAN: Well, obviously, I needed to consolidate my debt. Charlotte: Tell me about the service program that they provided you with. JOAN: Well, I'm not done. But for me, it’s costly. What I did not like about it was that they add on. They say it's going to be X amount of dollars. But then what they do is they say, “Oh, well, we found another creditor that you need to…” So that'll be at a different part of the month and I don't like staggered bills. If I'm gonna pay a bill, whether it's to the phone company, the insurance company, whatever it might be, I want to pay that bill once a month. That's the only drawback. Charlotte: So let me get this. Normally, they are collecting the bills upfront. And then they work to get them paid off at a different rate. So everything wasn't collected all at once, if that's what I'm hearing correctly. JOAN: No, no, no. Every month, money is taken out of your account. And they pay X amount of dollars. Like let's say you owe $5,000 with Citibank, $500 in Credit One, whatever. They work out a deal with them and then they say, “Well, you have to pay $350 a month.” And they'll pay $20 a month towards -- they give you like around about how long it's going to take. Two years, two and a half years. And then they work it out that way. Charlotte: Now, what did you think about your negotiator? JOAN: I don't know. I just called up. It's a completely different department. So when you call up to sign up, it's very different. I don't remember that. It's just that they collected all the information. It was easy for me. I didn't have to go through and find whatever bills I wanted to put in the debt relief. They did that. Charlotte: So say you have questions or concerns. How did you get your questions or concerns addressed? JOAN: I would just ask and they answered it. They're very helpful like that. They'll answer any questions you have. And if they don’t know, they will find out. Charlotte: So was there not a particular person that you spoke with? JOAN: No, you don’t have one person that you deal with that just handles your account. Once you do – they’re like headhunters. Until you sign up, you're going to have that one person and even other people calling. Once your name is out there, they're going to keep calling you. So, once you sign up, then it's whoever answers the phone. It’s customer service. Charlotte: How comfortable did you feel working with National Debt Relief through this process? JOAN: I felt very comfortable, very safe. I was not worried about anything. Charlotte: Is there anything about this process that you would have liked to seen handled differently? JOAN: Yes. The way the payments come out. I'd rather have them one instead of … Charlotte: Everywhere. JOAN: Right. Well, not everywhere. For the most part, the bulk of them were. But then if there's one here, one there, they don't just extend it to another payment. And then the payments change, like the payment amount. You could pay $20 for six months, and then all of a sudden, it's $80 for the next three months, so you really don't know. Charlotte: So if you have to rate this experience on a scale of one to five, five is you’d recommend to friends, one you're pretty dissatisfied… JOAN: No. I would definitely recommend it to a friend. Charlotte: How would you say working with National Debt Relief has impact your life? JOAN: Well, it did help until I hit a speed bump. I'm in the middle of a divorce and my husband closed our checking account, of course. But so far, as a matter of fact, that's why I thought you were calling. I have to postpone the next month, so hopefully, they'll be able to postpone it, because I've been postponing it for a few months. Charlotte: Would it be okay if I posted your comments as a review on our public website for National Debt Relief? Because you did give us some really good feedback. JOAN: Yes, but not using my name. Charlotte: Okay, I will make it anonymous for you. I will also send over a link so that you can have it as a record for yourself at jdola20@yahoo.com. JOAN: Yes, but do not put that public. Charlotte: Oh, no, no, no. That doesn't go public. Definitely. How would you say working with National Debt Relief has impact your life. JOAN: Well, really, it would have helped if I could have stayed on the program. Charlotte: We’re recorded.

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