Paying off a credit card can free up lots of money. Here's what to do with it.
Having to pay off a credit card can be a real strain on your limited financial resources. So if you're finally at a point where you've managed to shed that debt, you may be over the moon.
Of course, that begs the question -- what should you do with the money you won't be sending your credit card company every month? You could spend it on entertainment, apparel, electronics, or other fun things. But here are a few smarter moves to make.
1. Boost your emergency savings
A big reason so many people land in credit card debt in the first place is that they don't have an adequate emergency fund. Now that you have extra money at your disposal each month, it pays to look at putting that cash into a savings account if you don't have at least three months' worth of living expenses in the bank. Even if you do have enough money in savings to cover three months of bills, it wouldn't hurt to aim for six months of expenses. The more of a cushion you have, the less likely you'll be to wind up with another nagging credit card balance to pay off over time.
2. Fix up your home or vehicle
Some people put off home or auto maintenance due to the cost, only to suddenly find themselves faced with costly repairs that can land them in debt. Rather than risk that scenario, take the money you're no longer paying your credit card company and use it to address issues with your home or car. That could mean replacing an old air conditioner before it fails on you completely, or even performing routine maintenance that's overdue.
3. Boost your job skills
Growing your job skills could pave the way to a promotion. And that, in turn, could result in a salary boost that makes it easier to cover your bills -- and avoid credit card debt in the future. You can use your newfound savings to pay for an online course, or even cover the cost of going back to school for a specific degree.
4. Fund your retirement plan
Many people put off retirement savings because they need their earnings to cover immediate bills. But if you have extra money at your disposal after you pay off your credit cards, you can stick it into an IRA account to set yourself up for a more secure retirement down the line.
Put that money to good use
If you've spent months or years chipping away at a pile of credit card debt, you may be eager to go on a spending spree once that debt is paid off. But tempting as that may be, you're much better off using your newfound savings responsibly. Being in debt is stressful, and chances are, the last thing you want to do is wind up there again. By making the above moves, you can help prevent that very scenario -- and spare yourself a world of financial upheaval.
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