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What To Do Once Debt is Paid Off


Food is my profession, but I think my OCD tendencies have worked for our benefit when it comes to our finances. I’ll flaunt my nerdiness by saying that I enjoy tracking our expenses and reviewing how our budget is doing. As a saver myself, being married to a saver instead of a spender made paying off my student loans fairly painless since we were both all about throwing any penny we could find at the stupid things.

Before we even started making payments toward my student loans we had established three financial goals to pursue once we were debt free. This was so we could move right from one goal to another before we realized how much money we were throwing at it and thought up a more fun way to spend it. We pursued the first three ideas I share below (in the order listed as well) but I’ve added a couple extra that you can consider.

Build up your emergency fund

We determined what our monthly expenses would be if we were both out of a job for 6 months. It’s unlikely, but you just never know. The categories we accounted for include rent, utilities, phone, grocery, gas, health insurance, car insurance, and a bumper for any extra expenses to get by.  Since loans were out of the way, we took the money we were throwing at those and put it in a savings account for a 6-month emergency fund until that was completed.

Bump up your retirement contributions

Does your company offer a match for your contributions? If so, are you getting the full match? This is free money you don’t want to pass up! My part-time job is through the county and therefore isn’t a 401k but rather a pension, so there’s no match. My husband’s company will match our contributions up to 3% so now we have 6% going to a 401k. A good rule of thumb we decided to go by was to invest 15% of our gross income for retirement. Since 6% was going toward a 401k, we put the other 9% toward Roth IRAs.

Save up for a home

If being a homeowner is a goal, saving should start now. Having a 20% down payment can help you avoid private mortgage insurance (PMI). If your goal is to save 20%, just make sure you’ve got an extra cushion to cover closing costs and other up front expenses. I hate the thought of throwing money away for monthly rent payments, so I’m looking forward to the near future when we have our own home!

Contribute to a 529 college savings plan

Even if you only put away $50 per kid every month while they’re still little, it will be much less painful to fork over the money when college time rolls around. The other option is to wait until your child starts high school and you are hit like a truck with the reality that there is no way you can save enough in four years to start paying for tuition.

Depending how you plan to support your children financially with their education, this amount will vary or this goal may not even apply to you. My parents paid for my three sisters and my first year of college. My husband’s parents paid four years of tuition for all five of their kids. There’s not one right way to do it, but if you are planning on paying anything then you might as well start saving for it.

Choose a different investment vehicle

Have you considered pursuing real estate as an investment? This is something I don’t know too much about but I know that it’s a popular way to increase cash flow and your net worth. Once my husband and I pay off our first home we are considering renting it out instead of selling it since we live in an area where there are always medical students and residents looking for housing and won’t destroy the place like undergrads might.

Save for replacements

Is your car getting up there in miles? Our Honda Accord is at 180k and I’m confident it will run well into its age of 200k+ but we still want to have a little savings set aside in case it craps out on us. Do any of your appliances need to be replaced soon? This may be a great option since tax deductions are involved with the high efficiency items. Do your windows or roof need to be replaced within the next few years? Assessing your home for upgrades may help you decide how to save now that you’re out of debt.

If you are out of debt or soon to be out, what is your next step?

This has been a guest post from Jessica. She is a Registered Dietitian and shares practical, useful tips on food, fitness, and finance. Be sure to subscribe to her blog, Budget For Health.

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My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.


  1. great list! Those are really important stuff to focus on once we get our debts paid off. It’s really important to invest our money in something we would be able to use in the future.

  2. Very true. Not having a plan after debt payoff could potentially lead to poor decisions on purchases and result with the return of debt!

  3. Great list! It’s so important to keep the positive momentum flowing in all the other areas of your financial life after debt is paid off.

  4. We’ll be paying off our mortgage early this year and will be left free and clear with everything. From this point we will build back up our emergency savings, invest more in our retirement, save for renos, take a trip and enjoy life!

    • That is so exciting! No debt at all, not even a mortgage! Sounds like you’ve got a great list of to-do’s lined up

  5. Our only debt is our mortgages (on two homes), but we tend to split our extra money between RRSP investments, TFSA investments, unregistered investments, and over-payments on the mortgages. We also spend a fair bit on house renovations… and of course, vacations!

    • Do you spend a lot on renovations because you’re flipping a house? Sounds like you’ve got everything organized well. I’m glad to see you allow yourself some fun with vacations 🙂

  6. Very helpful list. This is exactly what everyone should do and as much as possible, avoid making another debt. It is always best to prepare for the future.

    • Thanks, Sarah. It is best to avoid debt whenever possible, especially if self-control with spending is an issue!

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