So You’ve Paid Off Your Student Loan Debt — Now What?

Cue the orchestra, break out the party balloons and start the celebration: You finally paid off student loans in their entirety.

Now that you’ve checked a massive goal off of your adult “to do” list, you may be wondering what comes next. There are many ways to move forward after loans have been paid, from paying down other forms of high interest debt to tackling your 401(k). Here are some of those possible next steps.

I paid off my student loans

When Rachel Gerner, 34, and her husband Matt, 35, were married in September 2013, they had over $30,000 in undergraduate student loans dating back to 2007 with fairly high interest rates (4% and 6%). Together, the couple had a combined salary of approximately $40,000 from their jobs at the University of Arkansas in Fayetteville.

Matt, who is a chemistry instructor, and Rachel, who works in the information technology (IT) department, managed to pay off their loans by working side gigs in the evenings and on weekends. This included tutoring high school students, teaching English as a second language online, and finding other jobs via Upwork. Rachel also sold her plasma for a few months and Matt picked up a second teaching job for one year.

“We doubled down on the debt because we knew if we worked intensely hard for a season, we could have the satisfaction of being debt-free,” Rachel said.

The Gerners’ student loans were finally paid off in full in 2015, after eight years of diligently paying them back.

“We spent two years tackling our student loans [together] with a combination of side hustles and frugal living,” Rachel said. “We were also very self-disciplined and kept a budget so, at a glance, we could know how much in our accounts.”

5 next steps after you’ve paid off student loans

“So, I paid off my student loans; now what?” you may ask yourself. It’s natural to feel adrift once a goal is met, so here’s a short list of suggestions of what you to do once you’ve paid off your student loans:

1. Celebrate

This is definitely something you want to prioritize after you finish paying off student debt. You’ve just accomplished something significant, so what better time to treat yourself (within reason)?

The reasons to make sure you take time to celebrate are two-fold:

• Celebrating allows you to relax and regroup before attacking your next big financial goal.
• Rewarding yourself has been proven to improve your self-control. That means you’re less likely to get back into debt if you take the opportunity to treat yourself.

Whether it’s going on a vacation, upgrading your home decor, or even buying a new pair of shoes, be sure to take the time to savor this success. For example, the Gerners celebrated with a week-long trip to Belize when they paid off their loans.

“It was amazing and a place we had always wanted to visit,” Rachel said.

2. Pay off other high-interest debt

Many college graduates carry credit card debt in addition to student loans. If you have other high-interest debt after paying off your student loans, it’s best to use your payoff momentum to tackle it before focusing your attention on other major goals.

You should especially focus on high-interest debt like credit cards, as these typically have much higher interest rates than the ones that come with student loans.

The Gerners didn’t have any other high-interest debt other than their student loans. They acknowledged that it would have been difficult to pay them off if they had been saddled with credit card debt.

3. Save up an emergency fund

During your debt payoff journey, you may have been contributing every spare penny to paying off student loans. Keeping your eyes on the prize is likely how you were able to meet your goal in the first place.

Now that you’ve paid off your student loans, it’s time to start thinking about the future. Setting up an emergency fund is a good first step. Experts recommend saving three to six months’ worth of living expenses in the event of true emergencies such as unexpected medical expenses, costly home repairs, or a job loss.

This will keep you out of the debt cycle — you don’t want to have to rely on credit cards or personal loans in the event of an emergency, especially after working so diligently to become student loan debt-free.

By funneling your student loan payment amount into a savings or money market account each month, you could save up a sizable emergency fund in no time, which will increase both your net worth and peace of mind.

“We didn’t have any debt other than student loans, so after we paid off the school loans completely, we shifted the extra money into our ‘dream fund’ for personal goals, investing it in laddered CDs, stocks, and bonds,” Rachel said.

4. Re-energize your retirement contributions

If you’ve been putting retirement contributions on hold to pay off debt, now is the time to play catch-up.

Once you’ve paid off student loans, other debts and built an emergency fund, consider automating contributions to your 401(k) or IRA. Remember: The more you contribute to your retirement now, the more time your money has to grow.

“For the last three years, we’ve flooded our retirement accounts, contributing 30 to 40% of our income into our 403(b) accounts and contributing toward HSA accounts,” Rachel said.

5. Tackle other goals, such as homeownership

Now is the time to begin thinking about other major milestones, such as buying a home. Your debt-to-income ratio is now low, or lower, thanks to being debt-free, which will make it easier to qualify for loans such as a mortgage.

Of course, homeownership isn’t for everyone. “We are not homeowners,” Rachel said. “We’ve done the calculations of what it would cost to buy a home in our area, even with a 50% down payment, we would get a greater (return on investment) on renting and investing what we would otherwise need to pay for the home.”

The couple has, in their opinion, an ideal rental situation (with their rent costing less than 8% of their combined income), which allows them to enjoy the flexibility to travel internationally, search for job opportunities, and pay close attention to their investments, rather than owning a home.

What else did you dream of doing while student loan debt held you back? Now might be the perfect time to plan that wedding, start a family or travel the world.

Just remember, take a moment to savor and celebrate before diving back in. Your financial goals will always be there waiting for you, and, best of all, after paying off so much debt, you now have more money to make your financial dreams come true.