Life after Credit Card Debt Repayment

In a country where the average person owes $3,321 to his credit card issuer, paying down the last of the bills is a big deal. But after that comes getting back on your feet, cleaning up your credit report, and kicking the habit that started it all. The challenges don’t end when your balance is a beaming $0—if anything, it’s the start of a whole new game. Here are some things you’ll want to remember.

Your credit report

You can expect some improvement from back when you were in the red, but don’t count on anything drastic just yet. While your new debt-free status will be taken into account, other things, such as missed payments, take more time to clear up. Defaults stay on your file for about five years, according to the credit bureau Dun & Bradstreet. So if you’ve had a bad patch in the last five years, banks may still consider you a high-risk borrower and withhold their best rates when you apply for credit.

Save yourself the trouble (and credit damage) of being denied a loan by checking your credit report a month or two before approaching the bank, and making sure it’s up to par. Once it’s back to its spotless state, let it stay that way for a while before borrowing again; otherwise you will seem all too eager to jump back in the game as soon as you were able. Waiting suggests that you have self-control and are taking time to weigh your options—signs of a safe borrower.

Bill payments

Don’t brush aside your non-bank obligations (mobile phone, internet, utilities) just because they don’t qualify as debt. Credit bureaus hear about it every time you open an account, and they can influence potential creditors’ decisions when you apply for debt. After all, you may not owe the bank anything, but regularly paying your phone bill two days late doesn’t make you look responsible. Paying on time all the time, won’t raise your credit score, but missing the deadline will pull it down. Specifically, late payments with a value of $100 or more will be recorded, Dun & Bradstreet says.

The wallet inventory

How many credit cards do you have? Most people have two or three, some have up to 15, but chances are you have more than you really need. There’s no magic number—it’s more about how your available credit matches your credit needs, according to Dr. Barbara R. Rowe, a professor and family finance specialist at Utah State University. If your total credit limit is greater than your credit needs, then you may have too many credit cards (although a bit of wiggle room won’t hurt, for emergencies). Keep the cards you can use in the most places, the ones with the best rates, and the ones whose benefits are justify their annual fees, she added.

Pay with cash

The advantages of paying with cash are no secret: it keeps you from overspending, makes you think twice about big purchases, and eliminates finance charges and penalties. A lesser-known advantage is that it makes you stingier, as shown in a series of studies published in the Journal of Experimental Psychology. Since it takes just one swipe whether you’re spending $50 or $500, you don’t feel the guilt when you put things on credit. With cash, you immediately feel the effects of your purchase (i.e. less cash in your hand), so you’re forced to think twice before heading to checkout. Withdraw a fixed amount every month and don’t spend anything more.

Saving for a rainy day

Set up an emergency fund on a separate bank account. Make it a point to put part of what you make in it every month. Even if you can only spare $20, it adds up as long as you stick to it. Most banks allow you to automate transfers so you don’t forget. Save half of unexpected bonuses and spend the other half so you don’t feel deprived.

What does this have to do with your credit? The goal is to give yourself a fallback in case you need access to quick cash, so you don’t have to put emergency purchases on credit. Having a good buffer will also get you better rates when you apply for new credit cards or loans. Choose a high-interest savings account or a money market account. These usually have withdrawal and offer compound interest (i.e. you earn interest on your interest), so you have more reason to save, according to Good With Money.

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