What to do after paying off credit card debt

If you’ve succeeded in paying off your credit card debt, here’s what you should do next.

In an economy where 18 million Americans are unemployed as a result of the coronavirus pandemic, if you’ve managed to work hard and pay off credit card debt, you should consider yourself lucky. However, luck aside, this can also be a confusing situation to be in.

Once they’ve paid off their debts, many people find themselves wondering what they should be doing next to improve their financial situation. If you’re one of them, read on below.

Here are four tips on what to do after paying off credit card debt. Armed with this knowledge, you should feel confident in your ability to decide your next financial goal.

Keep your credit cards open

Investigate better rewards cards

Evaluate your other debts 

Build an emergency fund

1. Keep your credit cards open

Once you finally pay off your credit card debt, you may be tempted to cancel your cards and stick to using your debit card. However, believe it or not, doing so might actually do more harm to your credit history than good. By that, we mean it could lower your credit utilization ratio.

Your credit utilization ratio is the measure of how much credit you’re using at any given point in time versus how much total credit you have available to you. This ratio accounts for 30% of your total credit score and, in general, it’s best to keep it as low as possible.

With that said, if you close your cards, you’ll lower the total amount of credit that’s available to you and raise your ratio, which will negatively impact your credit score. In addition, you’ll want to be careful not to close your oldest line of credit because that can hurt your score as well. 


2. Investigate better rewards cards

In fact, now that you no longer have to worry about paying significantly more than your minimum credit card payments each month, you may want to explore the idea of opening up a rewards card. Odds are, you’ll now have some better options available to you.

You can use Credible to browse credit cards and what kind of perks come with them.

Reward cards come in three major categories:

Cashback cards

Mileage reward cards

Points cards

With cashback cards, a percentage of any amount you spend gets paid pack to you. Mileage rewards cards allow you to earn miles that can be redeemed for travel purchases. And points cards allow you to earn points that can take the form of multiple redemption currencies. 

That said, there are a few things to consider before opening up a new card. For one, you’ll want to make sure that you’re aware of the card’s various interest rates. You’ll also want to make sure that you can afford to pay the card’s annual fee, if there is one.

If you’re ready for a new card, visit Credible to compare your rewards card options and their lenders. You can also use Credible's free interactive tool, which allows you to filter by card type.


3. Evaluate your other debts 

Even though your credit card debt is now off your plate, you probably have other debts that deserve your focus and attention. Consider refinancing your student loans to consolidate your debts into one monthly payment or refinancing your mortgage to take advantage of the current record low-interest rates.

Once you’ve refinanced, do your best to pay as far above your minimum payments on these loans as possible. Doing so will help you pay down your debts faster and help you get another step closer to becoming completely debt-free. 

If you’re interested in refinancing your student loans or your mortgage, Credible can help connect you with lenders who can help.

For example, you can plug in your desired loan amount and estimated credit score into Credible's rate table to see what kind of student loan refinancing rates you qualify for.


4. Build an emergency fund

Lastly, you could consider using the money that used to go toward your credit card debts to start building an emergency fund. In 2019, AARP found that 53% of Americans are living without an emergency fund, which is not ideal, considering the profound effect that the coronavirus pandemic has had on the economy as a whole.

No matter how much money you have in the bank currently, it never hurts to save more. Convention wisdom states that you should aim to have enough money to cover between 3 to 6 months of expenses saved up at any given time. While that may seem like a lofty goal at the outset, remember that every little bit of progress adds up.


The bottom line 

In an economy where millions of people are facing financial and credit hardship, if you’ve been lucky enough to be able to pay off your credit card debt, you’re in relatively good shape. Still, though, it never hurts to take stock of your financial situation and to evaluate what you can do to improve your financial stability.

With that in mind, don’t hesitate to investigate free resources like Credible to see which credit cards and lenders might be the best fit for your current circumstances.