Once you’ve paid off consumer debt — like credit cards — you may be wondering “What’s next?”. If you’re working to pay off debt, and you’re trying to figure out what to do after paying off credit cards, here’s everything you need to know!
Surprisingly, credit lenders and bureaus don’t punish you for having too many credit accounts. In fact, your credit score can be low or lowered because you have too few. The credit bureaus suggest that at least five accounts — including revolving credit like cards and personal loans — is reasonable.
So, if you have multiple credit cards, don’t fret! They may actually be working in your favor (at least when it comes to accounts).
What happens when you pay off a credit card in full?
Simply put, your credit score will go up when you pay off your entire balance on a credit card (or multiple cards). However, there are a few things to keep in mind, including that your score may drop temporarily or that your card can be closed.
How much will your credit score increase after paying off credit cards?
There is no one set increase for paying off your credit card or multiple cards. But, people typically say that they see an increase of at least 10 points, and upwards of 100 points.
Why did my credit score drop when I paid off my credit card?
While this doesn’t always happen, it can.
Basically, paying off a credit card account can cause your score to drop because it changes in your credit utilization. However, this is temporary, and most users typically see their score raise within two to three months.
Is it better to close a credit card or leave it open with a zero balance?
Will it hurt you to have a credit card with a zero balance on it? Should you close a credit card instead?
This depends on you and what your needs are, but there are a few things to consider. First, closing a credit card (even after paying it off), can change your credit utilization and cause your score to drop. And, by closing a card, you may also ruin your “credit streak” aka your credit history.
So, I don’t recommend closing cards that you may use in the future, or that you’ve had for a long time (ie. 3 years or more). But store cards, cards you haven’t had long, or cards with high APR rates and low credit limits can be closed.
Related: Should You Use Cash or Credit Cards?
What do you do after paying off a credit card? Should you close it?
Again, this depends on you. But I typically suggest not closing a credit card unless it’s a store card, hasn’t been used long, or has a low credit limit. Otherwise, you can keep it open!
But, if you are afraid of getting into massive amounts of credit card debt again, go ahead and close your cards. Taking a temporary hit on your credit is worth the peace of mind if you tend to be an over-spender.
How long should you keep a credit card open?
Keep your credit card open as long as you want, as long as it’s paid off!
For one, closed accounts with positive credit can stay on your credit report for up to 10 years. So you still get benefits even when you close your card. But, if you may use it for emergencies, or like the terms, there is nothing wrong with keeping a credit card account open.
Do unused credit cards close automatically?
It depends on the credit lender. But technically, yes, the lender can close your credit card account if you aren’t using it on a regular basis.
Now, this isn’t to say you have to get back into debt in order to keep your card from being closed.
Instead, I recommend using it for small purchases like paying for gas or a subscription, and then paying it off in full before you’re charged interest. This keeps the account active and avoids automatic closure, but also keeps you out of debt.
Do credit card companies like it when you pay in full?
Technically, no, because this means they aren’t making money off of you. But, this doesn’t affect you negatively in any sort of way. Instead, it just makes you look more credit-worthy!
In the U.S., the highest credit score is 850. As a note, only 1.2% of all credit-holding Americans have a FICO score of 850. This score typically takes years of healthy financial behavior, making every payment on time, and a low (if not 0%) credit utilization.
Is 700 a good credit score?
Although an 850 credit score is considered the highest score, this doesn’t mean you HAVE to have that score. In fact, a 700 credit score is in the “good” bracket, and can help you qualify for better rates and loan terms.
What To Do After Paying Off Credit Card Debt
Wondering what to do after the credit cards are paid off?
It’s a great question. If you truly want to know what to do after paying off credit cards, these next steps are for you. Check them out!
Pay Off Other Debts
While paying off your credit cards is a huge achievement, they may not be the only debt you have. So if you have any other debts, now is the time to focus on paying them off!
You can follow the “debt snowball” form of paying off these debts by rolling over the money you put on the cards onto what you owe. In other words, if you were paying $500 a month to pay off your cards, take that $500 and start putting it towards your other debts.
Make Sure Your Emergency Fund Is Fully Funded
Life happens. That’s how many of us get into debt in the first place. To avoid this as much as you can, fully fund your emergency fund.
I don’t just mean $1,000 either.
A full funded emergency fund will be anywhere from 6-months to a year’s worth of expenses. This will keep you on your feet if you lose a job, have a short-term disability, or have another life change. And, it can also help you avoid more credit card debt in the future!
Another step you can take is to start investing if you haven’t already. For some, it’s hard to focus on saving and investing when paying off debt, especially high-interest debt like credit cards. So once those are paid off, keep the momentum going and invest the money you were using towards debt!
And remember, you don’t have to start out with a huge investment amount either. Even just $50 a month can put you in a better retirement position.
Have A New Goal
If you’ve already paid off your debt, saved an emergency fund, and started investing, you may think that’s it. But it doesn’t have to be. Why not have a new goal? Humans love working towards something. And reaching goals keeps you young and hungry (remember: if you’re not growing you’re dying!).
Your goal can be financial or involve finances but not be directly related. For example, here are a few goals that I set (and met!) since paying off debt:
- Start a college fund for daughter
- Pay for college (for myself) in cash
- Buy a new (to me) car in cash
- Be able to take 2 vacations a year
- Have fully funded sinking funds to avoid issues month to month with my budget
- Buy an RV
- Have a 6-figure business
While money isn’t the end all be all for happiness, it can help you fund things that make you happy! By having financial goals, or goals where you use your money to get what you want and need, you’ll be able to tell your money where to go.
What To Do After Paying Off Credit Cards: Easy Steps That Can Get You Ahead!
If you’ve just paid off your credit cards, congrats! You’re farther ahead in your personal finance journey and can now focus on other goals. Now, take that money and start the steps we mentioned above, so you can feel better about your money.
Now that you know what to do after paying off credit cards, what will you choose??
AUTHOR Kimberly Studdard
Kim Studdard is a project manager for online entrepreneurs and small businesses. When she isn't spending time with her daughter and husband, or reading her growing pile of horror books, you'll find her working on her HR degree and working towards FIRE.