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July 24, 2019
Paying off debt is actually a big deal. Pour yourself a glass of wine or go out to dinner to commemorate this occasion.
By acknowledging this accomplishment, you are more likely to take money matters seriously and make good financial decisions in the future.
Most people, when they have paid off a debt, do not do anything special. They simply let that money get frittered away on other monthly expenses. This is a huge missed opportunity.
You are used to putting that money toward debt, this is an ideal opportunity to consciously allocate the money toward another cause. If you just start spending that money, it will be very hard to start saving it.
The most obvious thing to do with the money you were spending on debt payments is to start adding it to your retirement savings or another important cause like an emergency account.
Another option would be to accelerate payments on another debt.
Owning your home — free and clear — is an amazing accomplishment. You have probably spent 15-30 years making these payments. While you will no longer make mortgage payments, there are some other responsibilities:
If you have been paying off your debt with automatic deductions, it is important to contact your bank to make sure that these payments are no longer being made.
If you really think that your overall finances and retirement savings are on track… really truly on track… maybe you could go ahead and make a big plan for the money — save it for a dream trip or some other special bucket list item.
You might think that paying off a debt would automatically improve your credit score. However, that is not always the case. A number of factors go into your credit score including your credit utilization — how much of your available credit you are using.
If you need a little motivation, you might want to check in on your overall retirement plan to see how paying off the debt impacts your future and how much you need for retirement. A good online planner will also let you try different what if scenarios to help you figure out how to best allocate the money you were spending on debt payments.
The NewRetirement retirement planner — named a best retirement calculator by the American Association of Individual Investors (AAII) — is a detailed and easy to use retirement planning system.
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