It can be a proud accomplishment when you pay off your credit card debt. However, if you are not careful, it can also be very simple for you to get right back into debt.
Congratulations!
If you have paid off your credit card debt, congratulations are in order. However, just because you are debt-free now doesn't mean you can stay that way. You have to set goals and guard yourself against sliding backward. Go ahead and celebrate your new debt-free life and then follow the tips below to maintain a zero balance.
Maintaining a Zero Balance
There are several actions you can take to maintain a zero credit card balance.
Using your Card Responsibly
You can continue using your card as long as you can stay responsible with it. Pay your balance in full every month so you can keep a healthy credit score. Maintaining a good credit score will help you down the road in securing credit with low rates, obtaining insurance, landing jobs that require credit checks, and getting approved for utilities without having to put down deposits.
Finding Your Triggers
Once your credit cards are paid off, figure out the reason you were in debt in the first place. How did you handle your finances and how did others influence your spending habits? For instance, did friends persuade you to spend on shopping sprees or expensive dinners? When you get bored or are under stress, do you run to the mall? These are triggers that influence your spending behavior. Knowing and avoiding these triggers can help you stay out of debt.
Keeping a Budget
When you no longer have to account for every penny, it can be too tempting to do away with your budget. However, this is a quick way to get back into the same reckless spending cycle. Having a budget will keep you in line with what you can and cannot spend.
Preparing for Emergencies
You can pay careful attention to your spending, yet still fall off the credit wagon if you're not prepared to deal with financial emergencies. Unplanned items such as car repairs, medical emergencies, or an unexpected loss of income can bust the best of budgets and derail the progress you've made in maintaining a debt-free life.
Having an emergency savings account in place can help you absorb some of the stings that unplanned expenses have on your finances. Experts recommend that you save three to six months of your monthly income to deal with such situations. That way, when your car sputters and spurts, or you lose hours at work, you'll have the savings in place to deal with the emergency, instead of pulling out your credit cards to handle the situation, raising your account balance back to perilous heights.
Things to Tackle Next
Once you've got an emergency savings account in place, you should begin to pay off any other debts you have. You can start with the high-interest rate accounts. Pay off your student or car loan. Invest in your future, whether that involves starting a new business or looking for investment opportunities such as real estate. It is also crucial to begin saving for your retirement. This includes investing at least up to your employer’s match for their 401 K plan and maxing out your IRA contributions.
Keep an eye on your credit. You should be looking at your credit card statement every month even if you are on autopay. There is always the risk of mistakes that can affect your credit score. Go through the three national credit reporting agencies (Equifax, Experian, and TransUnion) to review your credit and credit score once a year.
If you find any mistakes on your credit report, you can dispute them and have them removed from your credit report once they cannot be verified as legitimate charges.
You have a clean slate now. It is up to you to stay responsible when using your credit card. Don’t make any unnecessary purchases and always pay your bills in full each month and on time. Just keep in mind how great it feels to be debt-free and go ahead and enjoy your money responsibly.