What Will You Do When You Reach Zero?

Even though I’m a grown adult (yikes – when did that happen?) I still daydream. And sometimes when I do, I imagine someone taking a magic wand and making all of my debt suddenly disappear. How easy life would be if only I didn’t have that black cloud hanging over my head! This fantasy appears most often when I’m wishing I could look for a more fulfilling job or desiring to buy some unnecessary object.

Have you ever had that same fantasy? I would imagine anyone carrying debt, whether it be student loans, credit cards, or whatever else, has. But what about when that day actually comes? What happens when you’ve followed your budget and actually near the date of being debt free? There are a few things that everyone should think about happening on that day – even if it is still a few months or years into the future.

Keep the cards or ditch them?

This question is somewhat of a trap. Your first instinct may be to cut off your credit cards after you get out of debt — to just close the accounts and never look back. But unfortunately, that can actually damage your credit score. Seems strange, I know. Why should you get punished for taking away temptation? But it’s true. For every account you close you take a hit on your credit and if you close multiple in the same year, that will have an affect on the overall score.

So what to do if you don’t ever want to look at a credit card again? You could start by evaluating your accounts with a financial planner and he or she can tell you if it’s worth closing them all or if you should keep some open. You should also remember that it is important to have some sort of credit available to you in case of an emergency. If you decide to close your cards, you can at least keep one (preferably the one with the lowest interest rate and a high enough credit limit to cover you if you should need it). And if you’re scared you may use it too often, hide it in your home and not in your wallet.

At the end of the day, you need to trust your instincts above all else. If you truly don’t trust yourself to have a credit card, at the very least open a reserve line and link it to your checking account – that way should you ever accidentally go negative on your account you will be covered (and you’ll avoid the massive fees that can pile up when that happens).

Reconfigure your budget

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What’s even better than paying off your debt? Realizing you have extra money every month now that you’ve eliminated at least one of your monthly bills! So even if your big day is still a few months or years in the future, go ahead and figure out what your new budget will be. Seeing how much money you will have left over every month when you’re debt free will help motivate you to stay on top of your current budget now.

Create new goals

Picture yourself on the day you’ve reached zero – and remember that you’ll want to do whatever you can to make sure you don’t end up in debt again. It is possible! Let’s start with the fact we just mentioned – that you will have extra money every month because you’ll have at least one less bill to pay. What are you going to do with that money?

One, you can start a savings account that you contribute to monthly. You can pay into it whatever you were paying on your debt or you could do a little less to make room for other things. Two, what kind of debt were you in? If it was student loans and you know you want to have children someday (or already do), then you can open a 529 Savings Plan to set aside money for education. If it was credit cards, you can open an IRA. It is never too early to start saving for retirement and now that you’re free of the past you can really focus on the future! Added bonus on opening the 529 or IRA – it will even help you on your taxes. So not only do you save more money, but you keep more of the money you earn.

The point is, once you’ve paid off your debt you don’t want to let the opportunity to have an even better future slip away. It may seem difficult to think about these things when you’re still struggling every month but it’s worth it! It will give you something to look forward to and help you prevent incurring more debt in the future. There is a light at the end of the tunnel!

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