5 Steps to Take After Paying Off Your Credit Cards is a post originally published on: Everything Finance - Everything Finance - Its all about Money!

Did you recently pay off your credit card debt? Congrats! This is truly worth celebrating as it requires hard work and discipline to get out of credit card Debt. Since Credit Cards have a revolving credit line, it’s also very easy to get back into debt overnight. Interest rates are also very high which makes it harder to get your balance down to zero.

If you’ve recently become credit card debt free, it’s important to have a clear plan in place to help you avoid future debt so you can manage your money wisely. Here are 5 steps to take after paying off your credit cards.

1. Check Your Credit Score

See how all your hard work has paid off. When you pay off credit card debt, your credit score should increase. This is because credit bureaus consider positive payment history and total credit utilization when calculating your score.

Realistically, you should see a credit increase before you’ve fully paid off the card. Let’s say you have a card with a $5,000 limit that you’ve maxed out. Over time, you start chipping away at the $5,000 balance and end up paying off $3,000. The remaining $2,000 represents 40% of your total credit limit. This isn’t the best utilization rate but it’s much better than holding a balance that’s 100% of your limit.

Be sure to check your credit score from more than one bureau to make sure all your payments get reported properly. Then, order a free copy of your full credit report from AnnualCreditReport.com. 

2. Determine How You Want to Use Credit Cards Differently

About 14 million Americans have more than $10,000 of credit card debt. When you’re paying off this debt, you have to manage your money differently and prioritize it. You can’t get out of debt with the same habits you had when you got into debt. The same can be said for staying credit card debt free.

Determine how you want to use credit cards differently now that you don’t have the debt hanging over your head. You can easily commit to never using credit cards again, but they aren’t the problem. Often, spending habits are to blame for credit card debt.

So set some new guidelines for yourself. This might involve keeping your balances low below 10% to 20% and paying your bill off in full each month. Or, perhaps you want to stop overspending to earn rewards and cashback.

RELATED: How to Overcome Your Guilt of Overspending

3. Rework Your Budget

Take a look at your existing budget to see how you can avoid future credit card debt and better manage your expenses. A budget should show you how much money is going out vs coming in. Ideally, you don’t want your spending to exceed your income. If money is tight, identify some areas where you can cut back and save. This may require some sacrifices, but you will also just need to prioritize what’s most important and be mindful of where your money is going.

If you plan to continue using credit cards, include monthly payment amounts in your budget. This should be for the full monthly payment or close to it rather than the minimum payment alone.

When you really peel back the rug and review your numbers, you may find that there’s not much room for credit card spend and that’s okay. It’s better to be realistic and understand your current financial situation than make purchases blindly. Like everything in life, your financial situation will change over time and there may be some years when you use credit cards more often.

4. Start Building an Emergency Fund

The next thing you’ll want to do once you pay off credit card debt is start building an emergency fund. An emergency fund is your first line of defense when unexpected expenses come up. Instead of using a credit card to pay for emergencies, the goal is to have some savings lined up to cover these costs.

Financial experts recommend saving 3 to 6 months of living expenses in an emergency fund. Come up with an amount that feels comfortable to you. Since we’ve all lived through the COVID-19 pandemic, it’s easy to see how quickly six months can fly by or realize that some emergencies can cost thousands of dollars.

Break up your savings goal to make it more realistic over time. For example, if you want to save $10,000 in an emergency fund,  set a smaller goal to save $5,000 or $2,000 first. This will make the task seem less daunting. Use your budget and control your spending to free up money to build your emergency fund. You can also try to pick up other jobs or side hustles to earn more money to boost your savings quicker.

RELATED: Why You Should Start Adding Sinking Funds To Your Financial Plan

5. Find Creative Ways to Save

If you truly want to use credit cards less and avoid getting back into debt, you’ll need to find creative ways to save money. Instead of using a card to earn rewards and earn points for travel, perhaps you can shop for discounts in other ways. This could involve using Airbnb for lodging or referring others to sign up so you can earn Airbnb credits for free stays. Or, maybe you could research hotel and flight discount sites or track flight prices before booking a trip to increase savings.

When it comes to alternatives to earning cash back, see if you can use other rewards options like Ibotta or Fetch Rewards to earn money back on your groceries. The upside is another option if you’re looking to earn cash back on gas fill-ups is Upside.

Also, keep in mind that you don’t always have to earn rewards or cash back. You can take advantage of sales, discounts, and find other creative ways to embrace frugality and save on everyday purchases.

Summary: Take Your Time Once You Pay Off Credit Card Debt

Once you pay off credit card debt, realize that you’ve made a huge accomplishment. Take some time to relax and acknowledge or even celebrate your achievements. Then, put a plan in place to actively avoid future credit card debt. This involves updating your budget, boosting savings, and committing to a different lifestyle where you manage your spending better.

Use the tips in this article is a guide to walk you through the process. Also, embrace your new and improved life with no credit card debt or future risk of racking up thousands on cards ever again.

5 Steps to Take After Paying Off Your Credit Cards is a post originally published on: Everything Finance - Everything Finance - Its all about Money!