Congrats, Your Debt Is Paid Off! Now What? (2024)

FAQs

Congrats, Your Debt Is Paid Off! Now What? ›

Once you've paid off personal loans or credit card balances, make sound financial decisions with your extra cash flow – like beefing up your emergency fund or investing in retirement. Ready for another big purchase? Consider setting up recurring transfers to a certificate to reach your new goal.

All of a sudden, all the income you've been throwing toward your debts each month becomes yours. With no more debts to pay off, you get to experience what your paycheck actually feels like without the burden of debt payments every month. As a result, you'll have a lot more money to save, spend, or invest going forward.

Focus next on a short-term goal that's essential to financial security: an emergency fund. Calculate the total of 3 to 6 months of your net income and save until you've met that goal. You can set up a Basic Savings account for your emergency savings—the focus is on access, not interest.

While paying off your debts often helps improve your credit scores, this isn't always the case. It's possible that you could see your credit scores drop after fulfilling your payment obligations on a loan or credit card debt. However, that doesn't mean you should ignore what you owe.

Create a to-do list of milestones to celebrate along the way, for example, give yourself a badge each time you pay off a credit card completely, or each time you hit another $1,000 paid off. Be happy for these small wins – you're one step closer to being debt-free and you'll feel better about your repayment plan.

You're mortgage free! Congratulations! This was no small feat. Your hard work and dedication are deserving of confetti!

What happens when you fully pay off a credit card? ›

Pros of paying your credit card off in full

You'll avoid paying interest if you pay your credit card balance off in full each month by the due date. Establish a better credit score: Using your credit card and repaying your balance will help you establish a good payment history.

If you're close to maxing out your credit cards, your credit score could jump 10 points or more when you pay off credit card balances completely. If you haven't used most of your available credit, you might only gain a few points when you pay off credit card debt. Yes, even if you pay off the cards entirely.

In general, keep unused credit cards open so you benefit from longer average credit history and lower credit utilization. Consider putting one small regular purchase on the card and paying it off automatically to keep the card active. At Experian, one of our priorities is consumer credit and finance education.

Being debt-free is a financial milestone we often hear about people striving for. Without debt, you can focus on building more savings, investing those extra funds and just simply having more peace of mind about your finances. Paying off all your debt, however, doesn't always make sense.

Making on-time payments to creditors, keeping your credit utilization low, having a long credit history, maintaining a good mix of credit types, and occasionally applying for new credit lines are the factors that can get you into the 800 credit score club.

Your loan servicer held the funds in escrow and made the payments on your behalf. But now that your mortgage is paid off, your lender will close your escrow account and send you the remaining balance. And you'll be responsible for paying your insurance and taxes on your own.

Once you pay off your loan, your lienholder will send you an official release of lien letter. You'll take that to your state BMV or DMV (or, in some cases, to your local city/town clerk's office) along with your current title and apply for an updated title.

Once your mortgage is paid off, you'll typically be responsible for future homeowner's insurance and property tax payments. Establishing a pre-emptive plan to manage these payments independently can help keep things running smoothly.