What to do Once You’re Out of Debt

Erasing Debt

Congratulations, you’re now debt-free! Making the final payment on your debt is a great feeling and leaves you with some extra cash flow every month. But how can you best make your increased cash flow work for you?

Increase your RRSP Contributions

Increasing your RRSP contributions is a great use of the extra money in your budget. The earlier you start saving for your retirement, the better, as your RRSP contributions benefit from the power of compound interest. Plus, your RRSP contributions reduce your taxable income, meaning that you will increase your tax refund come tax-time!

Build your Emergency Fund

Life happens, so it’s essential to have three to six months’ worth of expenses saved up. If you don’t have an emergency fund, now is a great time to start one! Consider scheduling a pre-authorized transfer to your emergency fund every time you get paid to build your emergency fund effortlessly.

Plan for the Future

Now that you’re debt-free, you have more funds available to you to put towards your future goals, whether that is buying a home, putting money into your child’s RESP or another long-term goal. Think about what your long-term savings goals are and put a plan together to reach them. A monthly contribution to your savings account or TFSA can be a good way to save for a long-term financial goal.

Stay on Budget

It may be tempting to celebrate your new debt-free status and make a large impulse purchase, but resist and stick to your budget! It can be easy to fall back into old habits and find yourself back in debt. Once you’re debt-free look at your budget and see if you can allocate some additional funds to your various spending categories. You may even wish to start saving for a large purchase, such as a vacation or a car.