Published in: Credit Cards | Feb. 8, 2020

The Dangers of Getting Debt-Free

By:  Dana George

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Becoming debt-free is wonderful, but there are unexpected dangers to avoid. 

It’s a wonderful thing to be able to say you are newly debt-free. Paying off your debt is like being handed a blank piece of paper on which to write the next chapter of your life.

However, the first few months after becoming debt-free can be fraught with temptation and financial danger. Here are a few hazards to look out for -- and how to avoid them -- as you cast off the shackles of debt. There are even some steps you can take now, while you’re still paying off what you owe.

A stylish young woman celebrating and throwing confetti in the air.

Image source: Getty Images

Over-celebrating

Becoming debt-free after years of work and worry is liberating. You may want to celebrate as you savor your new debt-free status. But be careful not to over-celebrate. If you've ever lost weight and celebrated by eating anything you wanted until you gained all those pounds back, you understand what a slippery slope this can be. 

Here are a few things you can do to prevent yourself from over-celebrating:

  • Start keeping a journal now, before your last debt is paid off. Write how you feel about owing money. Jot down your emotions, including any anxiety related to your debt. Write about the things you can't do and the places you can't go because you owe money. This may sound a bit masochistic. But the value of having a journal that chronicles the realities of debt is that you can look back on it whenever you're tempted to overspend and clearly recall what being in debt felt like. 
  • Now that you're without debt, write down what you would like your future to look like. How much do you want to save and invest? Is there anyplace special you would like to visit or an experience you would like to have? Is there a special cause you would like to financially support? 
  • Be exceptionally practical. Do you have enough money in your emergency savings account? Are your retirement accounts on track? Do you know if (and how) you're going to help your children continue their education? 

For many of us who become debt-free, the last step is the toughest. We thought that we were going to have nothing but freedom the moment we made that final payment, yet here we are, thinking of all the other things we need to do with our money. This may be what the word "adulting" refers to. 

Becoming an ATM

Once you become debt-free, those around you may feel comfortable asking you for money. Some people see becoming debt-free as a great excuse to spend money and are happy to help you do so. Your children, spouse, significant other, and/or friends could very well surprise you with their lack of understanding. They may not realize that saying no to them does not mean you don't care; it simply means you have a plan for your future and that plan does not include going back into debt. Before agreeing to give someone money, ask yourself these three questions:

  • Am on such solid financial ground that I can afford to give money away?
  • Does the person asking truly need my money to survive or are they just asking for something they want?
  • If I ever run into financial trouble, is this a person who will bail me out? 

No matter what anyone tells you, do not ever hand money over with the belief that you will be paid back. What you consider a loan someone else may consider a gift. Sometimes, saying no is more loving than saying yes and then resenting it. 

Being courted by creditors

Creditors love two kinds of borrowers: those who don't need money and those with a proven track record of paying their bills in full. You are going to receive offers for credit through the mail, in your inbox, and via phone calls. You are now a creditor's ideal customer. And unless you're made of steel, you will occasionally be tempted to take them up on their offers.

If you're confident that you can take on a new credit card and work it for the benefits, do so. Just make sure you can pay it off in full each month in order to maintain your debt-free status. 

Here’s where your debt journal will come in handy. Think back to when the weight of your debt felt suffocating and when it impacted the quality of your life.

Now, ask yourself if owning a new "thing" could ever feel as good as being debt-free. 

We suspect the answer is no. Just as debt once held you back, being debt-free offers you the opportunity to write your future anyway you'd like.

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