Paying off your credit card balance is a grand achievement, especially if you started out with a very high balance. After your balance reaches $0, you’ll have to make some decisions about what to do with the extra money you now have available to you, as well as your newly available credit. You have the option to pay off an additional credit card. If you are paying off your credit card, especially if you have more than one credit card, then take note that paying the balance may just be the beginning.
Since you have gotten rid of your first (or maybe second) balance on your credit card, you can focus on paying of the next credit card balance. Paying off your credit card with a lump sum payment towards your balance each month will help you to reach a $0 balance sooner. Be sure to continue making minimum payments towards all of your accounts. If you would like more information about paying off your credit card, see this helpful article.
When you’re finished with paying off your credit card, what should you be doing with your extra money?
Make the Final Payment toward Your Mortgage
After paying off your credit card, a smart place to spend the money you have from the freed up space you created within our budget would be to pay off your mortgage. People who purchased their homes with less than 20 percent down often end up spending more money on private mortgage insurance. You can decrease your monthly mortgage payment by increasing the amount of equity you have in your home and make you no longer responsible for PMI.
Besides getting rid of PMI, paying off your mortgage ahead of time can lower your interest and help you to become a homeowner years before it would if you simply stick to making your minimum required mortgage payments. Assess your loan paperwork to ensure that you will not run into any penalties for making early payments towards your home loan before they are scheduled.
Make the Final Payment towards Your Auto Loan
Another candidate in the running to be paid off after paying off your credit card is your auto loan. It may benefit you more if you pay off you auto loan before your mortgage. This is especially true if your auto loan interest rate is higher than your mortgage interest rate. You will end up saving money on the interest rate, and owning your vehicle sooner is an added perk. You’ll also have more funds to put towards your other financial goals since you are finished paying off your credit card and your auto loan.
Consider Putting Your Money in a Savings Account
After paying off your credit card and all other debts, the best thing next is to put your freed-up money into a savings account. Some savings account options include:
- Retirement fund
- Children’s college fund
- Emergency Fund
- Vacation Fund
- Fund to buy an expensive item you want
Remember that it’s important to take the money you were using to pay off all of your debts and put them into the savings account immediately. Make sure that you are not going out and buying new things with your newly freed-up money.
Be Sure to Close Your Accounts, or They Will Remain Open
After you have made the final payment towards a loan, the account is considered closed. If you decide to borrow an additional amount of money, then you’ll have to apply for a new loan. However, after paying off your credit card, the account remains open. Closing the credit card account is unnecessary, unless you are trying to reduce the amount of credit cards that you own.
By now, you should have attained a higher credit score, and it will continue to move up the ladder as long as you maintain your financial responsibility.
Do Not Fall Back into Debt
Now that you are finished with paying off your credit card, you may be drawn to the convenience that your credit card has to offer. If you do decide to use your credit card, make sure that you pay off the balance in full at the end of each month. If you feel as if you’re currently unable to maintain financial responsibility when it comes to paying off your credit card on time, then it is probably better for you to close your credit card account.
Don’t get back in debt. With your credit limit completely free, you may be tempted to rack up debt again. Resolve to pay in full any balance you do charge. Or close your credit card if you want to completely remove the possibility of getting into debt.
For even more information about paying off your credit card, see this YouTube video: