My Journey out of Debt

Featured customers currently enrolled in a CareOne Debt Relief Plan, share journey to become debt-free; hear how they juggle family, finances, and more.

You're Debt Free, Now What?

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You're Debt Free, Now What?Your final payment has been made, and you've contacted your CareOne representative to let them know you will be finished with your plan. 

Wow!  You are officially debt free! It's so exciting that you can hardly contain yourself.  That one payment you had been struggling to make for years is now yours - all yours. So now what?

Well, for me, I knew I needed to make some new financial goals. 

I figured since I didn't use my monthly payment for four years, I wouldn't miss it, and should start to save it. 

I watched my debt go down month by month, now it was time to watch my savings go up.  The big question was:  What should I do with my money? 

Again, I'm not a financial advisor.  However, I do work for a private club that has a few wealthy members. 

They gave me a few suggestions; you can also do your own research on the internet or read some of the financial blogs on the CareOne website. 

In the meantime, here are three basic things you can do once you've paid off your debt.

1. Increase Your Retirement Contribution or Start One:  I started a retirement fund at my job almost immediately, but wasn't putting much into it while trying to pay down my debt.  Once it was paid off, I increased my 401k contribution from 4% to 10%, and increased it again to 12%.  The great thing about a 401k is you don't really feel the deduction, as it's automatically taken from your paycheck, and most companies will match a percentage.  This is a long-term investment you'll be glad you started and it certainly falls under the "pay yourself first" motto.  Wouldn't it be great to be able to retire?

2. Add a Long-Term Savings Account:  Put at least 40% of your monthly payment into a savings account for the long term.  Do a monthly automatic transfer from your checking to your savings so you're not tempted to spend it.  Once you have a few thousand dollars, you can put it in a CD or a money market account to get a better interest rate. Imagine, a few thousand dollars that isn't debt?  Although interest rates aren't great right now, you'll make some money on your savings and will have better investment opportunities once the economy gets better.

3. Increase Your Emergency Fund:  My emergency fund was approximately $500 while in the DMP.  Since then, I have increased that fund.  My goal is to have enough to live off of for six to eight months in case I ever lose my job or I'm prevented from working due to illness, etc.  I use this same account for car repairs, unexpected bills, etc.  I do an automatic transfer to this account every month.  Although it fluctuates depending on what's going on in my life, it is growing at a steady rate.

These really are some basic suggestions to get you started.  If you have children, you should speak to a financial advisor concerning their savings or college savings.  

If you can continue to live without the monthly payment you made to CareOne, then invest it, save it, and watch your money grow! 

You are starting a whole new chapter in your financial life - one without debt!  What are your financial plans once you are debt free?

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CherylCheryl Bigos

Cheryl Bigos graduated from the DMP in 2008, and blogs as a graduate in the My Journey out of Debt blog.  She works as a Purchasing Manager in Los Angeles, teaches Pilates, and lives with her boyfriend of four years.  Cheryl is looking forward to connecting and sharing with others in the CareOne Community. Compensated CareOne Blogger.

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  • Another important option - whether you have debt or not - judiciously give it away! Do good things with it - it's often more satisfying than things bought for your own consumption.

  • I agree Alex!  Since being debt free I have donated to a cause I am very passionate about, and volunteer on a regular basis.  It always feels good to give back.  Thanks for your comment!

  • Being debt free is a huge accomplishment.  I couldn't tell from the article whether that included the author's home as well, but paying off your mortgage is also a great goal.  After that, the next step would be to save for retirement.  For 2010, the maximum amount allowable to contribute to a 401(k) plan is $16,500, or $22,000 per year if you are 50 or older, tax deferred.  That will not provide enough money for most people to retire, so you should also plan on saving additional funds.  If you can save 40% of your take-home pay (I think that is what the author is referring to when she spoke of saving 40% of her monthly payment?) then that will get you much closer.

  • You should put at least 15% of your pretax income aside for retirement.  Some of that you're doing already if you're saving 12% to the 401k, but you still need to do some more.  If you make 60k per year, then plan to set aside $750 per month(60k x .15 / 12).  If you have kids that need to go to college, then you should set aside more money if you're able to help keep them out of debt from tuition.  The earlier you start, the more you'll have.  If college costs $10k/year that's $40k that you'll need.  If they're 1 years from graduating, you'll need to save at $833 per month to have $10k set aside by the time the first year's bill is due.  If you have more time, the less you'll need to allocate per month.  Say you have 5 years, then you have to only set aside $375 a month instead.  That's a big difference.  Other things to do with your money are to save up for things so you'll never see debt again.  Start a fund to replace your car, for your kid's wedding, for vacation.  If you're debt free plans haven't paid off your mortgage, accelerate the payment of it.  If you're renting, considering saving up and putting 100% down on a house if you'd like home ownership.  If you've covered all these things and you have more left over, i'm sure there are charities that can help you spend some of it.


  • Hi Leslie,  I do not have a mortgage, but that is definitely something to include if you do.   I did initially mean 40% of the monthly payment I made to Care One because there are other investments like savings for kids colleges, you have a car payment, etc.  For me, I 'm planning on saving for a house so I'm putting the other chunk of my long-term savings towards a large down payment.   But you are absolutely right in saving 40% of your income when you no longer have credit card debt.  Thanks so much for the tip and the comment!

  • Hi Brian.  There is definitely a feeling that I need to make up for lost time.  I will be increasing my retirement fund again, but am also saving to buy a house.  I wanted to be fairly general with the post since everyone is in a different financial situation.  I will certainly focus on trying to purchase a home outright with no mortgage or a small mortgage if possible!  Great advice and thanks for your comment.

  • I wish college would only cost my yet-to-be-born-children $10k a year!  This list looks good, but I'd swap #2 and #3.

    #1 should definitely be retirement.  If your company offers a 401k, use it.  If they match, take advantage or you're leaving money on the table.  Start this ASAP to get the most out of compounding interest.  The longer you wait to get started or increase your contributions, the less you'll have at retirement - which could be as far away as 70 for some of us.

    After you're stashing money away for retirement in a 401k or an IRA, bulking up the emergency fund to 6 months of expenses is the first priority.  Any time you dip into that for car repairs/unexpected bills, replace that before you save elsewhere.  It's such a huge weight off your back knowing you've got some funds that are available ASAP should you need it.

    If owning a house is important to you, start socking away more cash towards a down payment fund once you have your 6 month emergency account.

    After that, branch out into money market, index funds, stock funds, bond funds, etc. depending on your risk tolerance.  Spread money into different accounts for college savings, vacation, stock market investing, etc.

    Being recently out of debt is a great feeling.

  • I have an MBA and have worked in the financial services industry for the past 14 years. The 401K is sound advice. I wouldn't TOUCH a long term savings account. Instead, put your money in a Mutual Fund with a nice track record (ROI) over 20 years. You can pull this money out whenever you need it and historically you will be making a far better return than the piddly savings account. An emergency fund is a nice idea; I don't have one and never will. I just keep my money flowing into those mutual funds. Use your credit card for an emergency and PAY IT OFF in a month so you don't get charged. Use your mutual fund to pay it. Lastly, if you have kids, open a 529 (its like a 401K but instead used for your kids education).

  • Don't worry too much about your children's college funds until AFTER you are meeting or exceeding all of your own goals.  It sounds selfish at first read, but it's just a reflection of one stark fact: There are lots of grants, scholarships, and loans available for your children's education.  There are NONE available for your retirement.  That's got to be first and foremost!

  • As far as 401-K plans go ----please consider the 401K ROTH plans----------right now they are the best option out there---------------------------Next if you are doing it yourself for retirement-----try to make sure it is a no load fund- with a low turn over rate---and low expense  for the area it is in--------if you don't no what I am talking about---------you need to educate yourself

    Also a mortgage is not necessarily a bad hing-----(as long as it has a fixed rate not an arm)--------depending on your income------saving more for retirement is far more important than paying down a mortgage------------( a mortgage is being paid in yesterday's dollars---after inflation------and a retirement account is trying to grow faster than the rate of inflation

  • Thanks for the tips guys!  I also started investing in an ETF (Exchange Traded Fund), and use that more as a long-term savings now.  The rate of return is much much better than a savings account.  My long term savings is in a Money Market that earns only .5% so I may transfer some of that balance over to my ETF.  Then I'll keep that moneymarket as my emergency fund.  

    Duck, you make a great point concerning mortgages and 401k's.  My parents house was paid off almost 10 years ago.  Their mortgage was $200 per month for a home they bought in 1978.  I think many people make the mistake of refinancing and taking equity out over and over.  Just buy it, live in it, and pay it off over time.  My parents put more of their money towards retirement and it's definitely paid off.  Both are retired at 63.  They were smart because they planned on working til 65, but the economy crashed and both eventually lost their jobs.  While my father did find some work for the short term, he decided he would keep trying until he turned 63, and nothing came up.   They were both prepared, and I think that's key.  

    Thanks for the advice!

  • I am retired and have had to use my retirement money up.  I want to tell those investing in tax free savings, don't.  Pay the taxes now while you have the money.  It was a great blow to my income when I had to pay the taxes now.  I've never seen a comment on this and it is a real problem when that is all  the money you have and taxes are taken from it.

  • I'm retired and i paid off both of my houses before i retired, i havent used any of my 401k or my ira accounts, i keep them for future inflactionary times, i have social security and my pention to live on, However, if i haden't paid off my morages, things would be alot different. people dont realize that a morgage can eat up a lot of your monthly earnings, and also have no credit cards if possiable, they are like a theif in the dark,

  • Hello!

    This advice sounds a lot like Dave Ramsey's. Are you a fellow Dave Ramsey follower? I ABSOLUTELY believe in having a good emergency fund. When a snowstorm kept me from working for about a week I was able to tap into the emergency fund to get by. It felt good to be prepared for whatever comes my way. A few months later out of the blue I had to replace all of the tires on my car. At the time I was sick with a bad sinus infection and the flat occurred on my way to the doctor's office so I was having a miserable day to begin with. I was able to call my fiance and have him come over, take the car and get the tires replaced- and I just wrote him a check to cover the costs. I can't tell you how good it felt to just write a check for it and to know that I wasn't going into debt due to this unexpected expense. I could still buy groceries and pay rent despite this unwelcome surprise. I am a very broke college student- but I work very hard and sacrifice a lot to try to keep my emergency fund around $1000.00. It is worth it! I do not make much money at ALL, but with strict budgeting, self-control, and good goals it is possible to save up an emergency fund.

  • Another point no one has mentioned-take care of yourself physically as well as financially.  I work in the healthcare industry and DAILY see folks who will never be successful financially because their healthcare needs require most all of the income they have and/or all the savings they HAD.  Many people now only in their 30s and 40s are in such bad shape with obesity, high blood pressure/cholesterol, diabetes that could be largely avoided by exercise, healthy weight, and no smoking.  The drag on society these folks create is tremendous as many of them are or become unemployed with limited hope for any substantial future earnings due to their healthcare needs.  And remember, for those of us able to reach full retirement age its estimated you'll spend $250,000 in todays dollars to cover health care NOT covered by Medicare-and we know Medicare itself is in serious financial trouble along with Social Security-too many seniors living too long for the working class to support .  Take care of yourself, live well within your means, and expect a bleaker lifestyle than the generation before us had and you MIGHT be pleasantly surprised.

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