Paying off your credit card balance is a huge accomplishment, especially if you started with a four or even five-digit balance. When the balance pays off, you’ll have to decide what to do with the money and credit you just released.
You can use the money to pay off another credit card
If you have multiple credit cards, paying off one of them is just the beginning of your journey to debt freedom.
Now that you have cleared the first (or second) credit card balance, you can apply the same force to the next credit card balance. Applying a large lump sum payment to your balance each month helps you pay off your balance long before you spread your payments through all your debt. Just make sure you keep making minimum payments to all your other accounts to avoid late fees and keep your account in good standing.
You can pay the mortgage.
Accelerate the time it takes to fully own your home by transferring your extra money to your mortgage. If you purchased your home at less than 20%, paying a mortgage will help you get rid of your private mortgage insurance. Increasing the amount of equity you have in your home can take away your PMI coward and reduce your monthly mortgage payment.
Aside from being PMI, paying off your mortgage can soon save you interest and push you to a full house in the last few years before making the required mortgage.
Check your loan documents to make sure you do not face any early penalties for paying your mortgage before it is scheduled.
You can pay your car loan.
Your car loan is another payment candidate after you have paid your credit card. You may even prefer a car loan over a mortgage, especially if your car loan is at a high interest rate.
Save money from interest and, above all, have your own vehicle. With your automatic payment and credit card payment, you have more resources for other financial goals.
You can invest in savings.
Unless you have other credit cards or debt to pay off, the next best thing is to put your money into savings. You can contribute to your retirement fund, kids college fund, emergency fund or vacation savings. It will be easier if you divert your funds to your savings goal right after you have paid your credit card. It’s harder to save money when you get used to spending it.
Your account will remain open unless you close it.
Paying off a credit card is not like paying off a loan. When you pay off the loan, the account is considered closed and if you want to borrow more money, you will need to apply for another loan. Assuming your credit card account was in good standing when you paid, your account will still be open. You don’t have to close your account unless it’s part of a larger plan to reduce the number of credit cards you have.
Your credit score may not increase significantly.
Your credit score has probably already improved since you consistently made payments on time and reduced your balance slightly.
Continue to use your debts responsibly to maintain the credit score you have built.
You may be tempted to go into debt again.
With your credit limit completely free, you may be tempted to recover your debt again. Avoid increasing your credit debt by paying your balance in full every month, without exception. Alternatively, closing your credit card eliminates the possibility of debt repayment.