Congratulations – you made your last student loan payment! Now comes the fun part: deciding how you’re going to use that extra money you’ll have every month.
Whatever the size of your debt, getting rid of it is like receiving a sudden (after-tax) raise. And if you’re strategic with that new money, it can go a long way toward building financial security and wealth.
Here are eight worthwhile ways to use your extra cash now that it’s no longer going toward student debts.
1. Celebrate being debt-free
After spending months or even years focused on eliminating your student loans, it’s healthy to take a breather and congratulate yourself for the hard work.
“You need to celebrate your success, especially with friends and family,” says Andrew Fiebert, co-founder of personal finance podcast Listen Money Matters.
“When you tell other people about your success it will keep you motivated and it is more likely that you will stay on track (they can help hold you accountable),” Feibert adds. “You will be less likely to be swamped in debt again.”
Feel free throw a debt-free party or go out for a night.
“Celebrate (a little), and treat yourself to something small, but enough to recognize a positive move forward,” advises Andy Yadro, a financial planner with Googins Advisors.
2. Roll extra money into repaying other debts
Now that you’ve eliminated your student debts, you might want to consider rolling your extra money over into repaying another debt.
This is especially smart if you are still paying off high-interest debt, like a credit card balance. In fact, this concept is what the debt avalanche and snowball strategies hinge on.
Essentially, as you pay off each debt, it frees up more money to pay down the next debt even faster. When you focus on repaying debt, you get guaranteed returns with interest savings. And you’ll be closer to true financial freedom.
3. Grow your emergency fund
“Getting out of debt is certainly a huge relief and a very exciting time,” says Sacha Ferrandi, founder partner of business lender Source Capital Funding, Inc. “However, with this newfound freedom, it’s important to establish a foundation to avoid putting oneself in a similar situation.”
In other words, you need to build up savings you can draw on in the future when a financial need arises.
“If you’re paying off debt you probably don’t have an emergency fund, and you need one,” Yadro says.
That’s because an emergency fund allows you to cover these needs with cash, rather than relying on debt for financing.
“Shoot for having three or six months of living expenses stashed away for the unexpected,” Yadro suggests.
4. Increase retirement contributions
Retirement savings often fall by the wayside in the quest to kill student debts. So if you’re not saving the recommended 10 to 15 percent toward retirement, your extra money should be used to increase retirement savings.
“Save it and invest it for your future, thereby giving you more flexibility in your future,” says Mintner. “Increasing your retirement contributions will be the best bet.”
Take the extra money you’ve freed up and use it to up your 401k or IRA contributions each month.
5. Invest extra cash with a P2P lender
“With your extra cash, try investing in P2Ps,” Fiebert suggests. “Lenders benefit from peer-to-peer loans because they provide yields that aren’t available with traditional savings accounts or other low-risk investment options.”
As a peer-to-peer investor, you can use platforms like LendingClub or Peerform to fund loans for borrowers.
“People who lend out their money themselves cut out the middleman, which allows them to make more in interest without having to charge a higher rate,” Fiebert points out.
6. Insure yourself
If you’re under-insured, this might be a good time to consider changing that.
For instance, if you have a spouse or child you support with your income, you may want to look into life insurance. That way you can provide continued financial support should something happen to you.
Or maybe you have health insurance but it’s only catastrophic. Perhaps now’s the time to start shopping around for a health insurance provider with a premium price that matches your old student loan payment.
Whatever your financial situation, consider your liabilities and responsibilities. An affordable, practical insurance policy could be a smart investment in your financial security.
7. Grow your earning potential
Lastly, think about how you can use your extra money in your budget to create even more money. There are probably some ways you could use those funds to invest in yourself or a business idea that would grow your income.
You can also figure out how you can invest in yourself to make you a more valuable employee. Maybe you can get a certificate that would help you get a raise at your current job. Or take a course that could facilitate a switch to a higher-paying career track.
Extra cash can also be used to get a side hustle up and running. You will have more room in your budget to invest in the tools, time, and overhead needed to start earning money in your spare time.
Making the most of being debt-free
There are plenty of worthy ways you can use your extra cash now that you’re free of student loan debt. That’s the joy of paying off student loans – you now have the freedom to decide how to spend your money.
Whatever you decide to do with your extra money, don’t forget to check those moves against your overall financial goals and values so you can achieve the best financial future possible.
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