What To Do After You Pay Off Debt

According to the Motley Fool, the average American family has $7,630 in credit card debt, $11,244 in student loans, $8,163 in car loans, and $70,322 on a mortgage. However, before you think the above amounts seem low, these figures include those who don’t have any debt. So, for example, when you only factor in those…

Michelle Schroeder-Gardner

Last Updated: November 15, 2020

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According to the Motley Fool, the average American family has $7,630 in credit card debt, $11,244 in student loans, $8,163 in car loans, and $70,322 on a mortgage.

However, before you think the above amounts seem low, these figures include those who don’t have any debt. So, for example, when you only factor in those who actually have a credit card balance, the average amount shoots up to over $15,000.

All of the above shows that the average family has a lot of debt.

You’re different, though. If you’re reading this post, you are either close to paying off your debt or already have.

Paying off your debt, whether it be from credit cards, student loans, a mortgage, or something else, is an exciting time. A person works extremely hard and sacrifices many things in order to beat the “norm.”

But, what’s next?

Many don’t think about what to do after they pay off their debt. This can be a mistake and may even lead to someone falling back into debt.

As everyone probably knows, debt is easy to fall into, and that’s the last thing anyone wants after they have worked so hard to pay it all off. Here are my tips for life, after paying off your debt.


Carefully celebrate your debt-free life.

I recently heard about someone who paid off their debt and then threw a HUGE party to celebrate. This person bought drinks for everyone, had a caterer, and more.

I can only imagine how much this newly debt-free person had to pay for this kind of celebration and whether or not it put them back into debt. For some, this may be a fun way to celebrate, but it’s definitely not for everyone.

There are plenty of ways to commemorate your new, debt-free life. You don’t need to spend a ton of cash, or go back into debt to celebrate.

Here are several examples of how you can celebrate your new, debt-free life:

  • Throw a frugal potluck. Just as much fun as a catered party!
  • Have a nice family dinner at your favorite restaurant.
  • Pay for a fun experience with cash that you’ve saved up, such as a vacation, skydiving, a visit to a theme park, or something else.
  • Do a debt-free dance.
  • Scream “I’M DEBT-FREE!”


Think about getting rid of your credit card.

If you fell into credit card debt but still have a credit card, you may want to think about getting rid of your credit card completely.

While there are many benefits of having a credit card, there are negatives as well. For some, credit cards can easily lead to racking up more debt.

You should carefully examine your credit card behaviors and decide if having one causes you to spend more money. You may not truly need one.

The last thing you want right now is to fall back into your old spending habits and go back into debt!


Start an emergency fund.

Only 40% of families have enough in savings to cover three months of expenses, and even fewer families have the usually recommended six months worth of savings.

The percentage of people who have emergency funds while in debt is even lower. Many of those paying off debt don’t have emergency funds whatsoever, or they just have very small ones.

Well, now that you don’t have debt, you should focus on building an emergency fund.

These are just a few of the many reasons why.

  • An emergency fund is there to ensure you don’t fall back into debt due to unexpected expenses.
  • It can help you if you lose your job.
  • It is wise to have one if you have a high-deductible health insurance plan.
  • It is a good idea to have an emergency fund if you have a car. Your car may need a repair, get totaled, or some other unpredictable expense may occur.
  • It is necessary if you own a home. We all know, one of the lucky things homeowners often get to deal with are unexpected home repairs.

Emergency funds are always helpful to have, because they offer peace of mind if anything costly was to happen in your life. Instead of building onto your stress, you will know you can afford to pay your bills and focus on more important things.

Related: Everything You Need To Know About Emergency Funds


Keep your budget.

After you pay off your debt, you may want to get rid of your budget, as you probably have a little extra cash. However, right now is the perfect time to keep budgeting.

This wiggle room may have you tempted to spend all of this extra cash, but now is the time to be smart and think of something useful to do with it.

I recommend putting this extra cash towards a new financial goal of yours, such as one listed below.


Work towards a new financial goal.

Just because you’ve paid off your debt doesn’t mean you are done with your finances. Right now is the ideal time to start a new financial goal, because you are likely very motivated after finishing your debt payoff goal.

If you haven’t already, there are many other financial goals you may want to start working towards. These include possibly saving for:

  • Retirement.
  • An emergency fund.
  • Travel.
  • Starting a family.
  • Buying a home.
  • Buying a car.

Have you ever fallen back into debt? What happened? How much debt do you currently have?


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Michelle Schroeder-Gardner

Author: Michelle Schroeder-Gardner

Hey! I’m Michelle Schroeder-Gardner and I am the founder of Making Sense of Cents. I’m passionate about all things personal finance, side hustles, making extra money, and online businesses. I have been featured in major publications such as Forbes, CNBC, Time, and Business Insider. Learn more here.

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  1. Nice post. I haven’t been to the point I pay off debt yet, but I firmly believe it’s not far ahead. Working on my site to generate passive income and pay debt. Good progress, but can definitely improve.

  2. anisapr

    Thank you. I just received a cancellation of debt so when reading this post I hoped to find what to do debt free in terms of building credit. I hope to build before debt paid off of course. Im sure you probably post about the matter elswhere. Always enjoying your post, thanks.

    1. I actually have a post being published later this month about building credit. 🙂

  3. Once we paid off our debt, we shifted towards a focus on saving. We are looking to potentially max out a 401k and our Roth IRAs this year after no longer having the debt payments. As you said above, it is good to concentrate on a new financial goal so you continue to put your effort into something. It helps to not fall back into debt!

  4. Once we paid off debt many years ago, we made a plan for our “extra” money right away. I started pouring it into our mortgage and investments so it didn’t get spent elsewhere!

  5. Amanda

    I’m so close to paying off my student loan debt – and then I’ll be debt free…for a hot second. (I plan on taking on a mortgage this year, but on a home that I want to stay in and pay off quickly.) I’ll make my last student loan payment on Valentine’s Day and I’ve been contemplating ways to celebrate. Maybe the potluck is the way to go! I’ll make pancakes:)

    1. Pancakes seem like a great way to celebrate 🙂

    2. Rachel

      We’re a pancake family and even have a little panqueque dance because everyone gets happy feet!!

  6. Exactly. The strategy of saving toward something that might have gotten you into debt in the first place is key. The best example here is a new car. Eventually, you’ll need to spend money on a car, so if you save up, you’ll either be able to pay all cash or have a lot smaller loan to pay off than you did with the last one.

  7. We paid off our debt the year we got married. We went back into debt twice to my parents after that. We bought their old car from them and they loaned me money to go back to school for a semester. Both times we paid them off as fast as possible, and we’ve got a healthy emergency fund now, so I hope we won’t have to borrow from them again. They’re very kind to help us out and not charge interest though! 🙂

  8. Fervent Finance

    The only debt I’ve had is a car loan and student loans.Once I paid off my car I funneled that money into paying down student loans and savings. Whenever I eliminate a bill or find myself with increased cash flow I always apply it to my goals, which right now is investing for the long term.

  9. Seems to me that if you’re going to throw an “I’m Debt Free” party, you should get someone to sponsor it! 😛 I could see a SoFi or Payoff type company agreeing to host some debt free parties. Hmmm, maybe there’s a new business venture idea there.

  10. Michael Belk

    I am making progress. I recently paid off a CC and it felt great. I plan to be debt free in 3 years. It all starts by having a budget.

  11. When do you think you’ll be debt free? 🙂

    1. That’s not too far away. Good luck!

  12. Amy @ DebtGal

    We’re paying down a lot of debt, so planning for what comes next, feels kind of far away. But once we achieve debt freedom, we’ll start bulking up on retirement savings. We’ve been contributing all along, but not as much as we should be.

    1. Yes, it can definitely be hard to think about what comes next. Good job on working on paying so much off!

  13. You can stumble into debt but you can’t stumble out. -Abe Lincoln

    Okay, I have no idea who said that but you have to take diligent action and make sacrifices to get out of debt. It’s totally worth it! Great post Michelle.

  14. Norman

    After you’re done paying off your debt and accumulating a rainy day fund, I think it’s important to start automatically deferring money to your retirement accounts and other investment funds. One only accumulates interest that you need to pay off whereas the other accumulates earnings that help you pay for things later on.

  15. Alexandra


    Reading this post makes me so excited to read the rest of your posts of how you paid off $40,000! I currently am in lots of student debt. Your blog has so many great ideas of making some side income – I also started a blog after reading your “Start A Blog” post.

    Awesome ideas and inspiration! Thanks! Cheers.

  16. I think the best thing is to choose one or two small areas in the budget that you can splurge a little more. Then bank, bank, BANK the money that you were otherwise paying down debt with. Like you said, an emergency fund is a priority. And retirement if you’re not saving enough.

    We did briefly get back into debt a couple of months after finally getting out of it. Tim got a stray, and the lil… adorable thing… created a whole bunch of vet bills. Then we fixed the budget and the cat finally got better.

  17. I’m still on the grind to pay off my debt. When it’s gone, it’s never coming back.

  18. Bad debt sucks. I have a ton of good debt (real estate investments)…even then, I’m striving to pay it down as fast as possible too. I find my risk appetite is much lower when I have kids to feed now.

    1. I have a very low risk appetite as well, haha!

  19. Bryan

    Great post Michelle. I became debt free in December and felt immediately relieved. I then came up with a lofty savings goal and put all I was paying toward debt and kept my budget like you wrote about. It feels awesome to see that net worth bar go up in mint every month now. It feels awesome.

  20. Jordan

    I like that you have saving an emergency fund after you’re debt free. I’ve heard of many people that have a good amount of savings, but then say they have X amount of dollars of debt. It doesn’t make sense! It would be smart to keep a small amount of savings like $1000 dollars max while your getting out of debt, but no more than that. This will keep you from going back into debt when small emergencies come up. Get out of debt then save a full emergency fund! Start today!!!

  21. Thanks. I recently been given a new cancellation involving debts while reading this submit We expected to locate where to start debts totally free with regards to building credit ratings. I really hope to develop just before debts repaid obviously. I am sure you most likely submit around the matter elswhere. Generally taking pleasure in your current submit, thanks.

  22. I think keeping your budget is an excellent tip. Instead of making that payment to your debt, automatically deduct it to your savings/investment account. You’re used to not having that money anyway so you’re not missing a thing. The money will start growing.

  23. I do all of these things…except I won’t ever get rid of my credit cards. I have never been in over my head with a credit card and they aren’t a problem for me. I like the points and I like having an option to make a purchase and pay it off over a longer period of time (usually with a balance transfer to lower interest). I do understand that some people are probably are better off without them.

    1. Great! Yes, not everyone is meant to have credit cards. I love them, though 🙂

  24. Agree, I’m debt free since Sptember 2015 and thanks to debt I understood the importance to have a budget, after I paid my debt I celebrate but now is time ot save more so I am going to do a sort of shopping ban…

  25. Sandi

    I find myself at age 50 about to take on a bigger mortgage, in order to clear all my debt and to reduce repayments as it’s a much cheaper interest rate. Aside from the mortgage I’ll be “debt-free” Haha. I’m very lucky I’ve been paying into super since 18y.o, so I don’t have to put aside more of my salary into super for now – for the next 11 years (that’s the plan) I will pour everything into the mortgage so it’s gone before I retire. The very idea of retiring with a mortgage scares me to death. After that, I’ll dump all my excess into super till I retire. To me, a mortgage doesn’t feel like a debt, because it’s money I never see – my job pays directly into the mortgage.

  26. I’m so glad I don’t have any debt, and haven’t been in debt for about two and half years now. I remember when I paid off my student loans I took a picture of the computer screen where it showed that I now owed $0.00. It was the best feeling! The only debt I might take on in the future is a mortgage, but that is a long ways away right now.

  27. Brittney@ Life On A Discount

    We are really close to paying off our non-mortgage debt ($18,000 left from $64,000 2 years ago). We should have it paid off within the next 10 months. It will be a huge relief. We refinanced to a 20 year mortgage last month and got a much lower interest rate, so while we probably won’t pay it off in the next few years, we will pay it off within at least 18-20 years.

    We have established a 6 month emergency fund, max out ROTH IRAs and contribute 8% to 401ks. So we have a long way to go on eliminating all debt, but feel great about eliminating all non-mortgage debt this year.

  28. Jen @ Frugal Millennial

    Great post! I will probably celebrate being debt-free by going out to dinner with friends at a reasonably priced restaurant. I definitely won’t be buying everyone drinks or anything crazy like that! Once my student loans are gone, I’ll have three new goals: purchasing my first home, adopting a couple dogs, and finally starting to save aggressively for retirement. None of these three things will be cheap!

  29. Great article, most people struggle to stay out of debt whether it paying students loans, car loans or mortgage but as soon as they are out they end up straight back into debt. Thanks for highlighting ways to ensure you stay out of debt and how to invest the new income. However I would have like to see ideas of how to manage debt? Thanks I always enjoy your posts.

  30. Years ago I read this story about how a woman celebrated paying off her auto loan…. by financing a new car. :/ That makes me sad. Definitely keep the same budget though!

  31. Adam

    Why in the world anyone would suggest getting back into debt (buy a home etc) after finally getting out is beyond me. Get perspective! STAY debt free FOREVER.

    Did you know it is ILLEGAL in some countries to be in debt?

    Did you know that most people are in a better financial position when they graduate high school than on their 30th birthday?

    I wish I could go back and have a long conversation with my 18 year old self. I retired at the age of 34 with a solid passive income stream, zero debt, and the whole world ahead of me. Turns out, I could have done the same thing MUCH earlier had I skipped the debt part in the first place. Financial education is KEY, and sorely lacking in our schools.

  32. Jessica

    Love your blog! My husband and I have paid off all of our debt except the mortgage. We both increased our 401K contributions to 10%. We are currently building our Emergency fund to 6 months. Then we are going to tackle the mortgage. I’m currently looking for a creative way to break a $240k mortgage up into manageable milestones.

  33. Lucy

    I am debt free live in south africa but travel to Nederland often.I am able to save regularly and own a paid off car. How can i structure my spending.

  34. So true about needing to set new goals to continue focus. While its no consolation to folks still in debt, It’s taken equal if not more discipline in not spending or being tempted to spend elsewhere. For goals I have set non-financial goals as well, which include health and a couple of necessary things on the house.